SCO Suspends Linux Sales, Warns Linux Shops of Liabilities

by Timothy Prickett Morgan

Back in March, SCO Group launched a $1 billion lawsuit against IBM asserting that it had willfully distributed Unix intellectual property owned by SCO to the Linux community and had undermined the Unix market with anti-competitive business practices. In a move that was clearly designed to freak out the Linux community, SCO yesterday said it would stop selling its own Linux and warned all Linux users that legal liability might fall on them as well as IBM.

As part of its scare tactics, SCO has sent a letter explaining what it believes are the issues to the top 1,500 companies in the world, most of whom presumably have Linux running somewhere in their various data centers. (You can read that letter by clicking here).

SCO said it will insulate its own Linux customers, who use Caldera OpenLinux or SCO Linux Server 4.0 (which is based on the UnitedLinux distribution that SCO developed alongside SuSE, Turbolinux, and Conectiva), from legal and economic harm resulting from the IBM lawsuit. The strong implication is that any company using another commercial Linux distribution or the open source version of Linux is not insulated from harm. SuSE has contended in recent weeks that its partnership in UnitedLinux protects it from legal assault by SCO, but SCO certainly does not believe this, and more importantly, has ceased participation in the development and marketing activities of the UnitedLinux consortium.

SCO says it has canceled sales of its own Linux, but it will continue to support existing customers and it will, until the Linux and Unix issues are resolved, focus on its Unix operating systems and solutions.

"SCO is taking this important step because there are intellectual property issues with Linux," said Chris Sontag, senior vice president and general manager of SCOsource, the intellectual property arm of SCO that is spearheading the IBM lawsuit, in a statement accompanying the announcement. "When SCO's own Unix software code is being illegally copied into Linux, we believe we have an obligation to educate commercial users of the potential liability that could rest with them for using such software to run their business. We feel so strongly about this issue that we are suspending sales and distribution of SCO Linux until these issues are resolved."

Stopping its Linux sales may not do much damage to its own top and bottom lines, since Linux software and support sales are only a small part of its business, but SCO is certainly not going to win any popularity contests with IT organizations or the Linux community with this latest maneuver. SCO realizes this, of course, and admits as much in the letter it sent out.

"SCO's actions may prove unpopular with those who wish to advance or otherwise benefit from Linux as a free software system for use in enterprise applications," said Darl McBride, president and CEO of SCO, in the letter. "However, our property and contract rights are important and valuable; not only to us, but to every individual and every company whose livelihood depends on the continued viability of intellectual and intangible property rights in a digital age."

While it is hard to argue that protecting intellectual property rights is wrong, the fact remains that the damage SCO causes to itself by these actions could be far larger. There is a common perception that SCO is in the fight for its economic life and that is why it has resorted to court battles. Being popular is not as important to SCO as is being right (regarding Unix intellectual property) and remaining in business. By the way, SCO also said yesterday that it had signed its second licensee through its SCOsource intellectual property unit. Exactly who has paid and what was licenses are unclear.

As things now stand, SCO has threatened to revoke IBM's license to Unix on June 13, and IBM says that its license to Unix intellectual property is perpetual and irrevocable. It seems remotely possible that these two parties will find some way to settle this before then, but then again, the sun could start rising in the West every day, too.

Exactly how the commercial Linux distributors, including SCO's former UnitedLinux partners and Red Hat, which never joined UnitedLinux and never will unless it takes absolute control over it, react to this latest development is anyone's guess. Anything that makes companies jumpy about Linux is a problem, since Linux is driving growth on Intel-based servers as well as on IBM's own zSeries mainframe and iSeries and pSeries midrange servers. It seems logical that SCO's next move will be to sue Red Hat, SuSE, TurboLinux, Conectiva and any other company that makes money selling and supporting Linux.

As I said back in March, SCO has a market cap that makes it an attractive target. Two months ago, all of the company's stock was only worth $37 million, and as I write this story it is only worth $41 million. IBM or a consortium of interested Linux parties could pass the hat around, raise perhaps $50 million, and launch a hostile takeover of SCO. Having secured SCO, they could kill the lawsuits and make all Unix intellectual property, as well as SCO's UnixWare and OpenLinux, open source. This is a smarter course of action than trying to fight it out in the courts. Linux shops and Linux enthusiasts do not care if SCO is right or wrong about the theft of Unix intellectual property. Neither do the IT vendors who have Unix platforms. They just want to get down to business. This lawsuit could cause far more harm to the IT industry than it is worth to SCO.