SCO Sues Linux Users AutoZone And DaimlerChrysler

Most Linux users have been reluctant to play by SCO Group Inc.'s rules in the company's mounting crusade to be compensated for its intellectual property. But following last week's bold lawsuits against AutoZone Inc. and DaimlerChrysler Corp., SCO's threat of legal action now has teeth. It's getting harder for other Linux adopters to stay out of the fray.

With a $5 billion lawsuit already pending against IBM, SCO Group CEO Darl McBride warned in November that the company would begin targeting Linux users if they didn't sign its licensing contracts. On March 2, SCO filed suit against AutoZone, one of the largest auto-parts retailers in the United States, for violating SCO's Unix copyrights by using Linux. The next day, the vendor did the same against DaimlerChrysler, accusing the automaker of breaking a Unix System V licensing contract and possibly contributing Unix source code to Linux. SCO has claimed, but has yet to prove, that some of the Unix System V source code it owns has been illegally copied into Linux.

"Many end users have not considered the ramifications of using SCO-copyrighted property," McBride said during a conference call last week. "Beginning today, we are moving to reinforce these contract rights against end users who've ignored SCO's position." McBride says his company tried but failed to reach agreement with AutoZone over its Linux use. Officials for AutoZone and DaimlerChrysler declined to comment.

In suing DaimlerChrysler, SCO has signaled that it's not overlooking Unix licensees that might have used Unix code outside the scope of their original agreements. DaimlerChrysler has been using Linux clusters since 2002 to run virtual crash tests (see Linux Clusters Power Virtual Crash Tests, Oct. 28, 2002). According to SCO, DaimlerChrysler failed to respond to a December letter it sent to 3,000 Unix licensees requesting that they recertify the terms of their contracts. SCO got responses from about half the companies, McBride says.

As SCO widens its fight, the company has so far found just a few takers for the so-called SCOsource licenses it introduced in August as a way for Linux users to avoid litigation. EV1Servers.net, a division of Everyones Internet Inc., last week revealed it signed an SCO license for an undisclosed amount. But McBride admits SCO has sold fewer than 50 such licenses.Other licensees include natural-gas supplier Questar, manufacturer Leggett & Platt, and Computer Associates. "CA disagrees with SCO's tactics, which are intended to intimidate and threaten customers," the company said in a statement. The license is part of a larger settlement between CA and the Canopy Group. CA lost a $40 million lawsuit in August to Canopy, which owns about 40% of SCO Group's stock.

Questar, which is running Red Hat Linux 7.2 on seven of its more than 100 servers, decided it was cheaper to sign SCO's license, at a cost of between $5,000 and $20,000, than mount a legal defense, a spokesman says. Questar is using the Linux servers to deliver Web content but won't expand Linux's use until the litigation settles.

SCO is also in a legal battle with Novell over Unix copyrights. SCO's litigious behavior will force more Linux adopters to assess their legal exposure, predicts David Byer, a partner in the patent and intellectual-property practice at law firm Testa, Hurwitz & Thibeault LLP.

SCO's staying power in the court system will depend in part on financial wherewithal. The company's losses doubled to $1.5 million on revenue of $11.4 million in its first fiscal quarter, ended Jan. 31, compared with the same period a year ago. Only $20,000 came from its SCOsource contracts. A major percentage of SCO's revenue in fiscal 2003 came from two technology companies that signed Unix license agreements: Microsoft accounted for 21% and Sun Microsystems 12%.

That has led to speculation by some that Microsoft is surreptitiously funding SCO's legal battles, which seemed to be reinforced last week by an internal E-mail that found its way to Eric Raymond, president of Open Source Initiative, a nonprofit corporation that manages the open-source trademark. The E-mail implied that Microsoft helped orchestrate a $50 million investment last year in SCO by BayStar Capital. SCO acknowledged the authenticity of the message, but described the contents as "a misunderstanding" by its author, an outside consultant. Microsoft said in a prepared statement that the E-mail's allegations aren't accurate.As if to remind everyone that it's still a software company, SCO last week disclosed plans to deliver a 64-bit version of Unix for Intel processors later this year. The company has an installed base of 2 million Unix servers.

Where's all this leading? SCO's hard-line approach will likely keep some companies on the sidelines and away from a technology that could help them cut IT costs. "It's an unfortunate trend that folks with business complications are taking it out on their end users," says Wisconsin state CIO Matt Miszewski. The state continues to analyze ways it might use Linux, but Miszewski says it's not moving ahead with deployments until some of the legal issues are cleared up.