Guild Companies

Unix and Linux operating system maker The SCO Group has launched a lawsuit against former partner and one-time Unix ally IBM that accuses Big Blue of willfully distributing Unix intellectual property to the Linux community and of undermining the Unix market with anti-competitive business practices. SCO is seeking $1 billion in damages and is requesting a jury trial in its home state of Utah. The company says that it has given IBM 100 days to settle or face revocation of its licenses to Unix.

Here's some history. In the 1960s, AT&T created the Unix operating system, and the C programming language for creating that operating system, to have an alternative and more streamlined platform than IBM's mainframe platforms, on which to build its telecom switch and back office systems associated with its phone services. Unix gradually made its way into academia, thanks to AT&T's open-source and open-systems policies. And by the late 1980s, a number of companies were creating variants of this Unix operating system, called Unix System V, as well as a number of other variants, such as the Berkeley Systems Design (BSD) variant, which is at the heart of Sun Microsystems' Solaris and Apple's Mac OS X. IBM's own AIX operating system is based on a different Unix kernel, called the Mach kernel, which was created at Carnegie Mellon University in Pittsburgh, but many of the layers of Unix functions that ride on top of this kernel are apparently based on Unix System V. (The BSD strain of Unix also uses the Mach kernel, by the way.) By the early 1990s, all the major server makers--including IBM, Sun, and Hewlett-Packard--had developed their own flavors of Unix and owning the Unix intellectual property was not something that AT&T was interested in any more. That's why AT&T sold the whole Unix enchilada to network operating system vendor Novell, which thought it could sell high-end Unix for supporting applications and databases on Intel-based servers against the RISC/Unix players, because its own NetWare file serving applications were not very good for this. After years of struggling to make its UnixWare operating system make money, Novell sold Unix in 1995 to Santa Cruz Operation, which had created its own implementation of Unix for entry machines (which is now known as OpenServer and is distinct from UnixWare). Last year, commercial Linux distributor Caldera International ate SCO, then changed its name to SCO Group because of the name recognition that SCO had had over the past decade. Earlier this year, SCO said that it would begin policing its Unix licenses very aggressively, and it hired David Boies, the top-gun lawyer who argued the government's latest case against Microsoft and prevailed until the appeals process began, to help it consider its options.

One other twist in the SCO-IBM lawsuit is a partnership between the two companies and Sequent Computer Systems, a supplier of NUMA-based servers that was eaten by IBM for $1 billion a few years ago and was then promptly ignored to death for developing a single version of Unix, dubbed Project Monterey, that would run across 32- and 64-bit Intel chips and 32- and 64-bit IBM Power chips. This deal was complex, and while SCO claims that the development work was done, IBM essentially pulled the plug on Project Monterey in May 2001. While the claims that SCO has made against IBM are complex and involve some 20 years of history in the Unix market, here's what the lawsuit boils down to, at least as far as SCO is concerned:

IBM may be in love with Linux, but SCO is feeling jilted, and rightfully so. The question now is what the lawyers will be able to demonstrate on either side of the case. IBM has not yet released an official statement on the case except this: "Our Unix license is irrevocable and perpetual. AIX is the fastest growing Unix in the industry as a result of our commitment to open standards and our credibility as a technology innovator." That's not exactly the same thing as a strong denial. However, brokerage house Merrill Lynch said in a report on IBM it put out on Tuesday that Bill Zeitler, head of IBM's Server Group, told its analysts in a meeting that the allegations made by SCO--that IBM misappropriated trade secrets in providing AIX code to the Linux community--were baseless. Zeitler, according to Merrill Lynch, said that SCO's assertion in the suit that Linux "couldn't have grown up without stolen code" was insulting to the Linux community. He reiterated that IBM's license to Unix was perpetual and irrevocable, which is something that IBM's lawyers at Cravath, Swain, and Moore, in New York, and the teams at Boies, Schiller, & Flexner (which is ironically located in IBM's headquarters in Armonk, New York) and at Hatch, James & Dodge (the firm's first partner is the son of U.S. senator Orrin Hatch of Utah, by the way) will certainly be arguing about.

The question of the week is whether IBM would just be smarter to acquire SCO instead of trying to settle this thing in the courts. SCO's market capitalization has tripled in only a few weeks to $37 million, driven mostly by the threat and then the filing of this lawsuit. It might be cheaper, easier, and better for IBM--and indeed any of the Linux or Unix players who might be hit with similar lawsuits--to acquire the rights to Unix completely and then give it away to the Linux community than it would be to fight SCO in the courts. And if IBM doesn't do it, now might be a good time for HP or Sun to step up to the plate before Microsoft does it and causes some real big trouble.