Guild Companies

When Red Hat launched a lawsuit against the SCO Group this week in the US District Court in Delaware to defend itself against SCO's allegations impugning the legality of open source technologies used in the latest releases of the open source Linux operating system, the first legal shot in what could become a volley that turns into a cannonball was fired. By suing SCO and setting up a $1 million legal defense fund for open source developers, Red Hat has taken a bold step. But a bolder one would be to put in an additional $1 million for open source developers to file complaints against SCO for damaging their businesses.

While the Linux community is small in terms of the number of companies actually engaged in deriving revenue directly or indirectly from Linux, the number of parties is easily in the hundreds and the amount of money is easily in the hundreds of millions of dollars. This makes the aggrieved companies that peddle Linux products something of an ideal class in terms of a lawsuit. With treble damages--if such a class action lawsuit was filed--could inflict as much damage to SCO as SCO initially wanted to inflict on IBM when it launched its $1 billion lawsuit against Big Blue in March.

In June, after waiting 100 days for IBM to comply with its demands, SCO amended its complaint and is now seeking $3 billion in damages. Among other things, SCO's suit, which was filed US District Court of Utah, contends that IBM had illegally been moving SCO's Unix intellectual property and coding methodologies, which it had access to through its licensed AIX variant of Unix, into the open source Linux operating system. SCO has revoked IBM's license to Unix, and IBM has countered that its license is irrevocable. A month earlier, SCO 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, explaining that they might be liable to legal or economic damages as the fallout drops on them from the SC)-IBM lawsuit. SCO has advised companies with its own Caldera Linux that they are indemnified from any legal action and has said that companies wishing to indemnify themselves from potential legal consequences can simply buy a license to UnixWare for their Linux boxes and be done with it. There is no indication that any company has done this as yet.

The prospect of a class action lawsuit alleging that SCO's claims in the lawsuit--which have yet to be substantiated in court--are damaging the Linux business is pretty good, but proving the damages would be more difficult. According to the Federal Rule of Civil Procedure 23, a class action lawsuit needs to meet three criteria: numerosity, commonality, and typicality. You have to meet all three criteria to have a class action suit. Numerosity means there have to be enough parties that are suing that it is impractical or impossible for them all to sue at the same time. The practical minimum threshold is somewhere around ten parties, and there are at least ten commercial Linux distributors as well as system and workstation providers who could, in theory, join the class. Commonality means that the parties in the class have questions of law or fact that are common to each other--they have to be in the same position, more or less. There might be, for instance, differences in the amount of damages that any Linux player could claim--Red Hat being the biggest commercial Linux vendor could claim more damages were done to it than SuSE or Turbolinux--but the type of damage would be more or less the same--people are suddenly afraid to invest in Linux and it takes much more effort to convince them because of the SCO suit against IBM and the veiled threats to the Linux community. The third criteria is typicality. While dozens or more parties can be in a class, the named parties in the suit have to really be similar in their grievances. Parties can be in a class if they are not exactly in the same situation--one company might sell Linux licenses and installation services, another might sell Linux-based PCs--but they can't be named parties if they are not typical of the class.

Neither Red Hat nor IBM have shown any inclination to take such an offensive move in the matter with SCO. IBM is content to defend itself in court in Utah and Red Hat's Open Source Now Fund has been set up explicitly to help open source companies cover the costs of infringement suits that SCO might bring against them as they develop programs under the GNU General Public License or sell services for products developed under the GPL license. (It is not so easy to see the difference between a software product and support for a product in the Linux world, since the source code is usually distributed for free and is, technically speaking, not what companies are paying for when they buy a license.)

Red Hat is not completely on the defense here, of course. The seven-count lawsuit it filed in Delaware on the opening day of the LinuxWorld trade show in San Francisco is asking the court to basically compel SCO to retract its claims that Linux is using illegal Unix technologies. "We filed this complaint to stop SCO from making unsubstantiated and untrue public statements attacking Red Hat Linux and the integrity of the open source software development process," said Mark Webbink, Red Hat's general counsel in a prepared statement released after the suit was filed. "Red Hat is confident that its current and future customers will continue to realize the significant value that our Red Hat Linux platform provides without interruption." Red Hat is seeking treble damages for unfair competition, false advertising, trade libel, and tortious interference.

Another option for the Linux community, of course, is one that we said IBM should do way back in March. Rather than make the lawyers all rich and tie up the courts, IBM could have just bought SCO back in March and made Unix open source and had been done with the issue. (Well, provided the Supreme Court didn't take issue with one company buying out the company that was suing it.) The Linux community could pass around the hat (something bigger than a red fedora) and do the same thing--launch a hostile takeover for SCO. At around $170 million, SCO has a market capitalization that is five times as big as it was when the suit was first launched in March. Acquiring SCO gets harder every day. The Linux community would have to pass around a very big hat now, and it would have to get some pretty big IT players to donate rather heavily. But such a move would allow IBM, Hewlett-Packard, Dell, Sun Microsystems, and other interested Linux parties to get rid of the SCO problem and keep their hands clean at the same time.

"SCO has consistently stated that our UNIX System V source code and derivative UNIX code have been misappropriated into Linux 2.4 and 2.5 kernels. We have been showing a portion of this code since early June. SCO has not been trying to spread fear, uncertainty and doubt to end users. We have been educating end users on the risks of running an operating system that is an unauthorized derivative of UNIX. Linux includes source code that is a verbatim copy of UNIX and carries with it no warranty or indemnification. SCO's claims are true and we look forward to proving them in court."