SCO sues Big Blue over Unix, Linux

By Stephen Shankland, Staff Writer

March 6, 2003

SCO Group, inheritor of the intellectual property for the Unix operating system, has sued IBM for more than $1 billion, alleging Big Blue misappropriated SCO's Unix technology and built it into Linux.

The suit, filed Thursday afternoon in the 3rd District Court of Salt Lake County in Utah, alleges misappropriation of trade secrets, unfair competition, breach of contract and tortious interference with SCO's business, the Lindon, Utah-based company said. SCO also sent a letter Thursday demanding that if IBM doesn't meet various demands, SCO will revoke IBM's license to ship its version of Unix, called AIX, in 100 days.

"We are alleging they have contaminated their Linux work with inappropriate knowledge from Unix," said Chris Sontag, senior vice president of operating systems at SCO and head of the company's SCOsource effort to make more money from its intellectual property.

Analysts saw the move as a desperate one for SCO, a company that hasn't been profitable in its current incarnation.

"It's a fairly end-of-life move for the stockholders and managers of that company," said Jonathan Eunice, an Illuminata analyst. "Really what beat SCO is not any problem with what IBM did; it's what the market decided. This is a way of salvaging value out of the SCO franchise they can't get by winning in the marketplace."

SCO hasn't sued other companies that have Linux products--for example, Red Hat or SuSE, but Sontag didn't rule out such actions.

Laura Keeton, a spokeswoman for IBM, declined to comment on the matter.

However, Steve Mills, senior vice president of IBM's software group, told CNET in an earlier interview that he didn't see any intellectual property concerns between Unix and Linux. He also was critical of SCO's efforts.

"What SCO is doing raises a bunch of questions," Mills said. "Instead of building customer value, they're chasing people saying, 'License technology from us.' To me it's an odd strategy."

IBM has a large arsenal of its own intellectual property, he said. Big Blue has been developing operating systems since the 1950s and "sits on a large collection of intellectual property" of its own.

Big Blue doesn't see any intellectual property concerns between Unix and Linux, Mills added.

Linux itself likely won't be directly affected, Eunice predicted. "If there's any impact on Linux, it'll be principally through fear, uncertainty and doubt," he said. "The principal winners in that would not be SCO, but Microsoft and potentially Sun."

Representing SCO is David Boies of Boies, Schiller and Flexner, the attorney who prosecuted the U.S. Justice Department's antitrust case against Microsoft and represented Al Gore in the vote-counting controversy in the presidential election.

SCO in January announced SCOsource, its strategy to seek licensing revenue more aggressively from Unix intellectual property the company owns. And the plan is moving quickly, beginning with a mechanism by which companies may license supporting Unix software "libraries" that let programs written for SCO Unix run on computers that actually use the Linux operating system.

"Companies that switch from competing in the marketplace to trying to enforce their basic patents and intellectual is a style of conducting business that isn't very conducive to getting a lot of business partners," Eunice said.

Bold actions
SCO isn't pulling in any punches, though: It's going after the biggest computing company and the one with the largest U.S. patent portfolio around. And it's not using gentle language.

"IBM is affirmatively taking steps to destroy all value of Unix by improperly extracting and using the confidential and proprietary information it acquired from Unix and dumping that information into the open source community," the suit said. "IBM's tortious conduct was also intentionally and maliciously designed to destroy plaintiff's business livelihood and all opportunities of plaintiff to derive value from the Unix software code in the marketplace."

Part of the bad blood in the suit stems from a flopped partnership called Project Monterey under which IBM, SCO and now-extinct Sequent agreed to create a version of Unix for Intel's Itanium processors. SCO shared expertise with IBM about how best to run Unix on Intel processors for that project, the suit said.

IBM canceled its Monterey plans, however. "On or about May 2001, IBM notified plaintiff that it refused to proceed with Project Monterey, and that IBM considered Project Monterey to be 'dead.' In fact, in violation of its obligations to SCO, IBM chose to use and appropriate for its own business the proprietary information obtained from SCO," the suit said.

Linux's rapid maturity--for example, growing up to work on large multiprocessor servers--is evidence of the presence of Unix intellectual property, the SCO suit said. "It is not possible for Linux to rapidly reach Unix performance standards for complete enterprise functionality without the misappropriation of Unix code, methods or concepts to achieve such performance, and coordination by a larger developer, such as IBM," the suit said.

Added Sontag, "When they (IBM) started utilizing the same engineers that worked on the Unix System V source code and the ultimate derivative of it in the form of AIX, they have effectively been applying our methods and concepts, even if there isn't a single explicit line of code" that shows up in Linux.

Asked if there was no possibility such features could have been independently developed, Sontag responded, "On such short order, it seems highly improbable."

Eunice, who has been involved in Unix for years, questioned the accuracy of some of the history contained in the SCO suit. For example, the suit says that "AIX is a modification of (SCO's) licensed Unix that is designed to run on IBM's processor," but Eunice said IBM was unhappy with the performance of Unix kept only the interfaces higher-level software used to communicate with it.

"The AIX kernel...was not principally based on the Unix source code. It was based on their (IBM's) own development," Eunice said.

Some claims, though, have more potential merit, Eunice said. One is that creating Unix on Intel processors needed expertise that SCO developed but IBM lacked, Eunice said. Another claim is that it would have been impossible for IBM to re-create versions of SCO libraries without SCO's actual code.

A complicated Unix history
Unix was invented more than 30 years ago by AT&T's Unix Systems Laboratories, and the Unix ideas have spread widely since then. Linux works in many ways identically to Unix, making it relatively easy to translate Unix software to Linux.

AT&T sold the Unix intellectual property to Novell Networks, which in turn sold it to the Santa Cruz Operation. Caldera International, a seller of Linux, then acquired from SCO the Unix rights and two SCO products, OpenServer and UnixWare. Then last year, Caldera changed its name to SCO Group to reflect the fact that most of its revenue came from its SCO business and not from the Linux products.

In the suit against IBM, SCO uses a former name, Caldera Systems.

In the most recent quarter, ended Jan. 31, SCO had a net loss of $724,000 on revenue of $18 million. In the current quarter, revenue should increase to $23 million to $25 million, with $10 million coming from SCOsource, the company said.

While SCOsource will mean a boost over that quarter's revenue, McBride cautioned in a statement last week, "We are currently unable to estimate the level of potential revenue from this initiative in future quarters."

IBM isn't the only company that is wary of SCO's intellectual property plans. Richard Seibt, the new SuSE chief executive, expressed concern in an earlier interview.

"They have the right to make money off their intellectual property. The problem is, they should have done this six years before," Seibt said. And SCO Chief Executive Darl McBride, by raising questions about Linux, would "hurt himself more than anybody else," Seibt said.

Sun Microsystems, however, saw an advantage in SCO's legal action. "Sun's complete line of Solaris and Linux products...are covered by Sun's portfolio of Unix licensing agreements," John Loiacono, vice president of operating platforms group at Sun, said in a statement.

SCO is a founding member of UnitedLinux, a four-company consortium that bases a common version of Linux on SuSE's product. "They are full members of UnitedLinux. We expect them to stick to the rules. They signed up as an open source (company). They buy into the GPL philosophy," Seibt said.

Sontag declined to comment on how his company's actions would affect its UnitedLinux partners, but said customers who buy Linux from SCO have no intellectual property concerns. "Those that purchase our Linux product have nothing to fear. They have our full license to our Unix intellectual property when they're purchasing our Linux products," he said.

Intellectual property lawsuits booming
Intellectual property litigation appears to be on the rise in the high-tech industry and for good reason: The settlements or verdicts are often quite lucrative.

Intergraph, which once made workstations but now specializes in software, got $450 million from Intel in two separate suits in the past year and could receive $150 million more from the Santa Clara, Calif.-based chipmaker in an appeal on one of the actions. Intergraph's income from operations in 2002 was $10 million, but net income including legal settlements came to $378 million.

The Huntsville, Ala.-based company currently has lawsuits pending against Dell, Hewlett-Packard, Gateway and Texas Instruments. The suits revolve around the same set of patents in the Intel actions.

Memory designer Rambus, meanwhile, is involved in lawsuits with Infineon, Micron and Hynix over memory patents dating back to 1990. Rambus' claims could be worth billions in royalties, experts have said.

"There is definitely an upswing" in intellectual property litigation, said Rich Belgard, a patent consultant.

CNET's Michael Kanellos contributed to this report.

Copyright 2003