The Four Hundred

The SCO Group has issued a statement about the lawsuit Red Hat launched against it on the opening day of the LinuxWorld trade show. SCO also announced pricing for the SCO Intellectual Property License for Linux, which Linux shops can now buy to indemnify themselves from future lawsuits that SCO might file related to its legal disputes with IBM and Red Hat over alleged misappropriation of Unix technologies into the open-source Linux operating system.

Darl McBride, president and CEO of SCO, and Chris Sontag, senior vice president and general manager of the SCOsource IP unit of the company, then explained the situation to reporters and analysts in a conference call last week.

What was immediately apparent from statements by McBride, and from correspondence between SCO and Red Hat, was that he was clearly under the impression that Red Hat was trying to move in the direction that SCO deemed a positive one and then changed direction and abruptly launched a lawsuit against SCO that amounts to a request for a gag order on SCO to stop bad-mouthing the Linux business. SCO is clear in contending that it knows Unix intellectual property has been stolen and put into the Linux operating system, and that all it is trying to do is protect its property.

"The Red Hat suit demonstrates what we have been saying all along," said McBride. "Linux developers are either unwilling or unable to screen their code," he said, and characterized the open source Linux development process as being one where the attitude "don't ask, don't tell" prevails.

McBride went on to declare unequivocally that Red Hat's implementation of Linux contains unlicensed Unix code and derivative works that are the property of SCO. He then said that Red Hat's claim in the suit that SCO has not shown the portions of the Unix code that have been lifted and put into Linux was incorrect, and that it has, in fact, shown such code to over 100 industry experts under nondisclosure agreements. This information cannot, he says, be made publicly available on a Web site, because doing so would violate SCO's own due diligence in trying to protect its own copyrighted IP and derivative works. "We have an almost 100 percent hit rate from people we show the code to. They agree there is a problem here."

SCO has done a preliminary review of the Red Hat suit, and McBride says that SCO is weighing its options, which include filing a motion to dismiss or filing counter claims. McBride had nothing but scorn for the Open Source Now Fund, a $1 million kitty that Red Hat promised to set up yesterday to allow open-source developers who might be sued by SCO to defend themselves. McBride said that SCO never had any intention of suing these developers, but has from the beginning focused on litigation (and presumably threats of litigation) with the companies that employ Linux developers. IBM and now Red Hat are shifting the legal burden from themselves to their customers, in SCO's view. "IBM is not indemnifying end users, and now Red Hat is doing the same," he explained. "They are taunting us to go sue the end users. IBM and Red Hat have pinned a Linux liability target on the backs of their customers. This is not where we wanted to go." But, to protect its rights, SCO seems committed to doing this, if necessary.

In the meantime, SCO has announced the SCO Intellectual Property License for Linux, which Linux users can buy to get out of the way of these warring companies and indemnify themselves from the legal fallout. This is a license to use Linux in a binary form that is compatible with the GNU Public License, under which many open source programs are distributed. Between now and October 15, it will cost $699 per processor, and thereafter it will cost $1,300 per processor. If you think the price for the IP License for Linux is a bit high, it is by some measures and it isn't by others.

Red Hat is selling its Linux Server AS 8 Premium Edition for $2,499, its Linux AS Standard Edition for $1,499, and its Linux ES Standard Edition for $799. (The difference in price reflects the number of processors supported and the timeliness of technical support given.) SuSE is selling its Linux Enterprise Server 8 for $749 per server, regardless of the number of processors. By this reckoning, based on the prices for the IP License for Linux that will go into effect on October 15, SCO thinks the IP that is allegedly misappropriated into Linux is worth the same or more than all the rest of Linux. This seems preposterous and ludicrous, but it is very difficult to value open source technologies that are given away. Red Hat and SuSE may be undervaluing what Linux is worth. I don't agree with that sentiment, but it is clearly not an illogical position.

An objective pricing would depend on how much Unix code has been misappropriated into Linux (if you believe SCO's allegations) and on what portion of the total value of a Linux server program that code might represent. A simple percentage dividing lines of code stolen by total lines of code is not exactly fair. The vast majority of Linux servers sold today do not actually make use of the NUMA technologies that are at the heart of the dispute between SCO and IBM, but some do and many more will in the future as Linux scales further with Linux 2.6. Moreover, NUMA technologies are expensive to develop, even if they are for the few. Such a value call will be hard to make, but unless there is a settlement, a judge will be doing just that.

In any event, probably the best way to reckon what SCO seems to think the allegedly misappropriated Unix technology is worth is to compare the cost of the IP License for Linux to SCO's street prices for its own UnixWare 7.1.3 operating system. Direct marketer CDW is a UnixWare reseller, one of the 11,000 that SCO has. According to its online store, a base edition of UnixWare 7.1.3 for a single processor server with one user is $609. A license for another 25 users costs $916, and adding 100 users costs $3,759. Adding support for an additional processor costs $1,183. To put it bluntly, even assuming that SCO is absolutely correct, and some of its IP has been misappropriated, it is charging an excessive amount for the Linux IP license. An IP License for a four-way X86 server will cost $5,200, while a license to UnixWare for the same machine with 25 users on it will cost $5,074. A UnixWare 7.1.3 Enterprise Edition bundle on a four-way machine with 50 users costs only $3,999.

This kind of excessive pricing for the IP licensing is not going to go down well with the tens or hundreds of thousands of Linux server customers (the number is hard to gauge, given the open-source nature of Linux) who have installed an estimated 2.5 million servers running the Linux 2.4 kernel. SCO is not going to get customers to give it that money very easily, and certainly not before the matter is settled in the courts in Utah and Delaware. That said, SCO claims that one heavy Linux user in the Fortune 500 has already forked over the dough for licensing their Linux, and another 300 companies have called in to get more information on it.

The SCO-IBM case has been assigned a trial date of April 11, 2005, in Utah, and the Red Hat case will follow within a few months in Delaware, according to McBride. A lot can happen between now and then, and it probably will. IBM has filed a counterclaim against SCO, which we discuss in a separate story in this issue. This issue is far from settled.

What impact this case has on OS/400 shops will be hard to gauge, since the number of companies using Linux in partitions on the iSeries is unknown, as is the number of customers who use Linux on RSIC/Unix or Intel-based servers alongside their iSeries. SCO has not yet seemed to figure out that OS/400 has a Unix runtime environment inside of it, called OS/400 PASE, and any ruling that nullified IBM's rights to Unix would nullify its rights to put PASE on iSeries machines. Quite a number of new applications for the iSeries were moved to the box using the Unix runtime environment, including the TCP/IP stack in OS/400 Version 5. SCO has not asked OS/400 customers with OS/400 Version 5 software to pay a special license to use PASE, but it might yet do that before the case goes to trial.