Transcript, Part 2, of Teleconference

By Pamela Jones

August 6, 2003

Here is the rest of the transcript I promised. If anyone sees any errors, please let me know. It's as accurate as I can make it, with parts marked where I didn't catch exactly what was said. Wherever I wasn't sure, I didn't guess, so as to be fair. I also left out some word whiskers. I'll put this together with the first part as I find the time, and put it in the archives. So, without further ado:

"McBride: In furtherance of this agenda, SCO is rolling out this week its new licensing plan for Linux. The run-time license permits the use of SCO's intellectual property in binary form only as concerning a Linux distribution. By purchasing a SCO intellectual property license, customers avoid infringement of SCO's intellectual property rights in Linux 2.4 and Linux 2.5 kernels. Because the SCO license authorizes run-time use only, customers also comply with the General Public License under which Linux is distributed.

"OK. Those are my opening statements. Let's go ahead and open up the phone lines for any questions that you might have.

"(Directions given by unidentified female on how to indicate you wish to ask a question.)

"UF: And we'll go first to Lee Gomez with Wall St. Journal.

"Gomez: Hello?

"McB: Hi, Lee.

"Gomez: Hi, Darl. How are you?

"McB: Great.

"Gomez: Can you explain to me why you don't release the examples of infringement that you keep talking about, so everyone can see this?

"McB: Actually, we have been releasing them. We've gone through. . .

"Gomez: (interrupting) Is there a web site or something?

"McB: What we've been doing is we've been going through these sessions and giving them, the people (cross talk as Gomez asks a question, but inaudible)... there's two types of infringements here. As it relates to the derivative works code, actually we can be very open about that. It's not something that's under protective provision that we have in our contract. So we've been very clear that the NUMA, the RCU contributions that have come from IBM into open source and into Linux, into the Linux kernel, are direct violations of our...

"Gomez: (interrupting) Do you have actual specific examples in there?

"McB: Absolutely. That's one of the things that we've been showing, is absolute...

"Gomez: (interrupting) By showing, who do you, do you mean making this publicly available to anyone?

"McB: Sure. Absolutely. The only pieces that have been restricted are the pieces that we have basically control restrictions on (inaudible) in our contract. We can't just open this up. The minute we open it up, we have in fact opened it up to the public, and we can't restrict it in the future from a proprietary standpoint. So under that scenario, we have shown this to over one hundred people so far, under NDA, and the clear conclusion of people, coming back, is, yeah, they getting to see the direct, line-by-line verbatim copies of the code.

"Gomez: Could you make available a list of the people that you've shown it to?

"McB: I'd have to go back with my PR team. Some of the companies that we've shown that to don't necessarily want to have it revealed. For example, I . . .

"Gomez: (interrupting) (inaudible cross talk) Are you saying that you've thoroughly made it available to some Linux and open source activists or something along those lines?

"McB: Absolutely. We've found out they've have written about it, in fact. We can make available what he said publicly.

"Gomez: Who was that?

"McB: I don't remember his name. Chris, you ...?

"Sontag: I don't have his name in front of me either, but we can provide that to you. By the way, I just want to remind everyone that we're limiting everyone to one question. Thank you.

"McB: Lee, the other question, in response to that question there, so, yeah, we have gone through and we have shown this code, and whether it's in the verbatim side, and that is confidentially protected, or on the other side, which is open. We've done that. And this last week, I met with a Linux developer who came in and admitted going in to the discussion, that he was skeptical. He was, you know, he'd been watching this case for four months, and after we went through the code (inaudible) he said,"OK. You've convinced me. Now what do you want me to do?" So, it's really clear from everybody that we've met with, virtually every, almost 100% (inaudible, but maybe hit) rate of the people who've looked at this, say yeah, there is a problem. (inaudible, but I think he said, "Beth?")

"UF: Thank you. Now we'll hear from David Becker with CNN.

"Becker: Hi, could you tell me the terms of this new Linux license pricing and how one would go about acquiring that?

"McB: Sure. Chris, you want to give some detail on the announcement we made today on the licensing side?

"Sontag: Sure. (clears throat) The pricing initially for a single CPU commercial use of Linux 2.4 or above is $699 for an introductory price that will be good until October 15, after which it will climb to a higher price. We've decided to provide an introductory pricing to allow people to more readily purchase that intellectual property license from SCO to continue on with their business unaffected. The means by which they can obtain that license is to contact their SCO representative and they will place them in contact with appropriate people in my organization to set up appointments to facilitate the purchase of those licenses. (pause) Next question?

"UF: Thank you. We'll go now to Larry Greenmeier with Information Week.

"Greenmeier: Hey guys. I have a question about an email that had been sent out. One of the things it refers to is a possibility of a global resolution of SCO's intellectual property claims? What else can you tell us about this? You know, what went into resolving this prior to the suit? What type of global resolution were you referring to?

"McB: We've had discussions over the last several months. I can't get into the details, based on confidentiality provisions. We have had discussions, you know, at a point in time we thought these discussions were going somewhere. You know, in terms of where we are right now, clearly it's at a point of time where we're going to take matters in our own hands and move forward. So, you know, I guess the way to categorize it, we have had some discussions but from where we stand right now, it's time to start marching onward again with our legal claims that we have.

"UF: Thank you. Our next question will come from Michael Singer with Jupiter Media.

"Singer: Yes, hi. So, to clarify, are you also taking legal action, like a countersuit against Red Hat at this point? Or are you just considering it and kind of assessing your situation?

"McB: Right. Good question. We do have a number of options in terms of how we move forward on this, you know in terms of how we move forward, what we do next, do we, you know, we have questions as to whether Red Hat's complaint even states a claim upon which relief may be granted, but, due to the fact of the way that it was filed.

"We may file a motion to dismiss. We also have counterclaims against Red Hat that we could file, according to the rules established by the federal courts. It's probably a fair estimate that the Delaware case that was filed yesterday would go to trial some time in 2005, which is about the same time as the IBM case. The IBM case, for your information, does have a court date now, and that is, in April, I believe it's April 11 of 2005. And this one's probably tracking behind that one by a few months, so again, we got the suit yesterday. David and his team are looking at the various options that we have. We're not here today to say which path we are going down, but I am letting you know that based on the way the suit was filed, there are a number of options that we have, and we're looking at all of those options currently.

"Sontag: Next question?

"UF: Thank you. We'll hear rom Maureen O'Gara with Client Server News.

"O'Gara: Thank you. Hi, guys. Are you going to try to back bill some of these people? I mean, when does this license pick up as far as time goes? I'd like to know what the real price (inaudible) of a uni-processor system is, if it's not $699, and that's only introductory, and I'd like to get some sort of an idea what the pricing for the rest of these other sorts of systems are, multiple CPUs, the CPU addons, the desktop systems, and the embedded systems. Can you help us out here?

"McB: Sure. Chris, I know we have more detail behind where we are on the pricing for the embedded systems and what not. Do you want to jump in with that?

"Sontag: Sure. I'm happy to answer that. Maureen, the price after October 15th for a uni-processor system will be $1399. Uh, detailed pricing of additional CPUs will be available on our web site. I think it'd be a rather boring list to read off to you right now, but tracking along that same level of pricing for additional CPUs.

"UF: Thank you. We'll go now to Reed Stevenson with Reuters.

"Stevenson: Just a couple of technical details. Is this a one-time license or are you going to charge yearly or something like this, and also, due to the timing of your announcement, which is right at the start of Linux World in San Francisco, I mean, is there something you're trying to say to the Linux (inaudible, but I think community)?

"McB: On the price, it is a one-time license as its structured there, now Reed. With respect to the Linux World conference, we basically got served with this suit yesterday and we're responding to the Red Hat suit, so, I'm not sure what their timing was from Red Hat's standpoint, I talked to Matthew Szulik, their CEO, on Thursday, had a really amicable discussion with him, we... in fact, thought we were on track to sit down and I volunteered to them that we would show them the code, that we've volunteered to show to anybody that has come in to this point. And actually, right after the call, on Thursday, I called my team and said,"Hey, I think we may be getting some positive traction here. So that this is interesting." So that was Thursday. And then on Monday morning, we get served with a lawsuit. So I'm not sure what their timing was as related to Linux World (inaudible). First of all, we're responding to where they are. Our pricing announcement, we announced a couple of weeks ago that we were going to go down this path, we were going to take a few weeks to do some checking, and going through and validating with various customers. We've gone through that. We've got things bolted down now, and in fact, have now launched the pricing of that.

"UF: Thank you. From Wired Magazine, we'll hear from Gary Rivlin.

"Rivlin: Aren't you worried that even if you're right here, you lose, because you could very well alienate every Linux programmer on the planet, which is a large and influential group?

"McB: Well, I think the way we look at this is, if we're right here, and we have every reason to believe that we are, based on the evidence that we have, we think it's the other way around. We think that there needs to be a recognition here that intellectual property rights do matter. The legal system, copyright laws do matter, and in fact that should be the recognition going forwared, that we need to step back and take a look at this business model we have on the open-source side, which in fact doesn't have any inherent protections.

"It's been interesting, as I've talked to a lot of Linux developers, at the same time that they like the model of having things freely available, virtually every one of them talks about their need to in fact have their own business interests protected, in fact thy have needs to put bread on the table, and then everybody focused on, that I've talked to, "How do I make money on top of this Linux model that's out there?" And that's why I believe that one of the things that might create going forward, I believe this is going to be the impetus for in fact adjusting the open source model in a way that people have a better ability to make profits off of their hard work, their proprietary work, that they've put in to their coding efforts.

"Sontag: Next question?

"UF: Thank you. We'll go next to Chris Gaither with Boston Globe.

"Gaither: Yes, I was wondering if you have an estimate of how many, roughly, end users this might apply for, and also if you plan on suing end users who don't sign up for the SCO intellectual property license?

"McB: Right. The absolute number, it's hard to get your arms around, by virtue of the way Linux has been distributed, it's redistributable, freely copyable, etc. We have got our arms around a number that roughly 2 1/2 million servers, installed servers, are out there, since the 2.4 kernel shipped, and so, you know, the, obviously, the number is, we think, is in the thousands. We don't know how many, whether it's tens or hundreds of thousands of customers. The server shipments that are out there, they're in the millions. And with respect to where do we go with this next, yes, we do have an ability to go down to the end user with lawsuits, if we have to.

"If you look at what's happened here, there's an article that just hit the wire here, I was reading just before we went online, how IBM has come out and said that they in fact are not indemnifying their end users. So the game here, there's a shell game going on around legal Linux liability, and the rock that it's showing up under is the end-use customer. Now, the question then is, when it moves from IBM to Red Hat to an end-use customer, and in fact both companies have in fact shifted the liability, they admit they've shifted the liability to the end-use customer, and have basically taunted us to go sue them to get relief for our damages that we have, you know, at a certain point, you're left with that card to play with, so that's what we're staring at.

"I think that as we move forward here, the big part of putting the licensing program in place was to in fact avoid these lawsuits. I was encouraged when I talked to Matthew last week maybe we were moving down a path where there'd be some resolution with a Red Hat where we could start to work out these differences. Obviously, that all changed, as of yesterday, so yes, we're absolutely, 100 per cent, going to fight for our intellectual property rights we've paid hudnreds of millions of dollars to either purchase or develop over the years, and you know, our desire is that we can work through this in a licensing fashion, but if we don't get there with licensing, then we will have to move to enforcement actions.

"Sontag: OK, the last question.

"UF: Thank you. And that will come from Herbert Jackson at Renaissance Ventures.

"Jackson: Hi, guys, you've been busy.

"McB: (laughs) Yes, it's been a busy few months.

"Jackson: (laughs) Can you comment on any discussions with other software vendors that might produce a (inaudible) legal version of Linux going forward?

"McB: We have a variety of discussions going on and I'm not at libertyto go into detail of all the various discussions that are out there. I can say there are companies we're dealing with that have seen the code, have seen the problem, they're stepping up There are others that are taking the approach to really come after us, and to try and take our legal rights that we have and just squash these rights.

"So we are encouraged that we have some agreements we've signed already, we have other agreements that are in the works that we're encouraged about how they're working through the process, and so we will see how those go.

"I think the summary of the whole thing in terms of where we stand right now is, you know, the reality here, IBM and Red Hat have painted a Linux liability target on the backs of their customers, and due to IBM and Red Hat's actions, we have no choice but to fight the battle at the end-user level. It wasn't the place we wanted to fight the battle, but that's where we've ended up, and they've pushed us in that direction. Yesterday was another push in that direction.

"It was very interesting that I think one of the biggest announcements yesterday was an announcement that in fact was not made. At the same time that Red Hat stepped up and talked about a legal liability indemnification fund, they targeted that fund for someone who's not even under attack right now. We've never said once that we're considering that we're going after Linux developers per se. We have talked about in fact the end-use customer is where the Linux legal liability is being held. The fact that Red Hat set up an indemnification fund and didn't even mention the customer was, I thought, a pretty loud statement. So there seems to be an elephant on the table here in the SCO-Linux debate, and it's all around indemnification. And the fact that Red Hat ignored this issue in its press statement yesterday, to me speaks volumes. And what they didn't say is becoming by now very loud and very clear, and that is, the legal liability for Linux truly rests with the end user."

9:33:55 PM

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