Thursday, August 14, 2003
OSDL Q&A by IP Attorney Lawrence Rosen:
"You May Continue to Use Linux WIthout Fear"
There is a new position paper by technology law and intellectual property expert Lawrence Rosen in which he addresses the indemnification FUD as well as whether there is risk in using Linux:
"Q&A re: SCO vs. IBM
"by Lawrence Rosen, General Counsel, Open Source Initiative
"The following questions and answers were prepared by the author at the
request of the Open Source Development Lab (OSDL) as a result of intellectual
property issues arising in the wake of SCO Group's lawsuit against IBM. This
position paper is intended by the author to calm some of those uncertainties.
"Q: Can SCO demand license fees to use Linux?
"A: Sure. But just because someone demands money doesn't mean you should pay them.
SCO has sued only IBM, remember, not you, and is demanding at least $1 billion in
economic damages. IBM didn't reach for its checkbook yet. Why should you?
SCO already licensed Linux to you royalty-free when it distributed Linux under the
GPL license. Although SCO purported to suspend its Linux distribution after the
commencement of this lawsuit, SCO continued to make Linux code available for
download from its website. By distributing Linux products under the GPL, SCO
agreed, among other things, not to assert certain proprietary rights - such as the
rights to collect license fees - over any source code distributed under the terms of the
Some people complain about the absence of indemnity in open source licenses,
including the GPL license used currently for Linux. The economic equation is simple:
Because the software is given away for free, no open source licensor can afford to offer
I don't believe indemnity matters anyway in this case, because of the way SCO has
structured its complaint. Assume, for example, that SCO wins its case against IBM
and IBM pays $1 billion in damages to compensate for the use of SCO's confidential
code in Linux. (Again, this is a worst case scenario helpful only to assess risk to Linux
users.) How then could SCO turn to Linux users and ask for the same damages all
over again. That double-dipping isn't fair in law or in equity. Courts usually don't
Simply by being an interested and aggressive defendant with deep pockets, IBM is
now effectively shielding Linux users from damages, even without an indemnity
provision in the GPL.
"Q: What is my risk if I continue to use Linux?
"A: Assume the very worst: Assume SCO wins its case against IBM and IBM writes a big
check for damages. Assume SCO proves that some portion of Linux is a copy or
derivative work of its trade secret software. Assume SCO gets an injunction to
prevent anyone from using any version of Linux containing infringing code.
As I previously assured you, long before that happens there will be a new open source
version of Linux omitting any SCO code. Non-infringing Linux will be readily
available for everyone's free use because the open source community is entirely
committed to Linux.
Whatever IBM may be forced to pay will presumably compensate SCO for its
damages. It would be astonishing if, after IBM p aid SCO some huge damage award, a
court would let SCO go after users as well for the same damages.
For these reasons, the SCO vs. IBM lawsuit is not likely to have any real impact on
Linux users. It is a battle of big companies that will be resolved in due course by the
court, perhaps by the payment of money.
In the meantime, and forever, Linux is available for free."
OSDL's press release says Lawrence Rosen is founding partner of Rosenlaw & Einschlag, a technology
law firm, with offices in Los Altos Hills and Ukiah, California (http://www.rosenlaw.com ). He also servers as general counsel and secretary of Open
Source Initiative (http://www.opensource.org ), which reviews and approves open source
licenses and educates the public about open source issues. Another release here.
SCO Comments on Insider Trading
They have a press release here:
"The SCO Group, Inc. (Nasdaq: SCOX) encourages its directors and executive officers to sell the stock held by them through plans designed to qualify for the protections provided by Rule 10b5-1 under the Securities Exchange Act of 1934.
"The 10b5-1 plans provide for future sales of stock, at predetermined times and in amounts and under conditions specified in the plans, without subsequent instructions from the participants. These plans have been adopted by the following individuals: Robert Bench, CFO; Jeff Hunsaker, Sr. VP Marketing; Reg Broughton, Sr. VP International Sales; and Michael Olson, VP Finance/Controller. These plans have been implemented primarily for the purpose of providing liquidity to the participants to meet sizable personal tax liabilities resulting from the vesting of restricted stock awards.
"During the three months ended July 31, 2003, individuals selling under approved 10b5-1 plans sold 88,000 shares of the Company's common stock. Two other executive officers sold 29,616 shares during the same three-month period in Company approved open trading windows. For the upcoming three-month period to end on October 31, 2003, the above-referenced executive officers may sell up to 141,000 shares of the Company's common stock under current 10b5-1 plans if the conditions of the various plans are met. No other directors or executive officers have implemented a 10b5-1 trading plan to sell shares of the Company's stock during the next three months.
"Our directors and executive officers beneficially hold approximately 6,005,000 shares and options to acquire an additional 2,016,000 shares."
Their third-quarter financial results press release:
"For the third quarter of fiscal 2003 ended July 31, The SCO Group, Inc. (Nasdaq: SCOX) reported net income of $3.1 million, or $0.19 per diluted share, on revenue of $20.1 million, compared to a net loss of $4.5 million, or $0.35 per diluted share, on revenue of $15.4 million for the comparable quarter of the prior year. Revenue for the third quarter of fiscal 2003 from the Company's operating system platforms was $12.8 million, and revenue from its SCOsource licensing initiative was $7.3 million, both within the range of previous guidance.
"For the first nine months of fiscal 2003, the Company reported net income of $6.9 million, or $0.47 per diluted share, on revenue of $55.0 million, compared to a net loss of $22.1 million, or $1.58 per diluted share, on revenue of $48.8 million for the comparable nine-month period of fiscal 2002. The Company's current fiscal year ends October 31, 2003.
'During the quarter ended July 31, 2003, SCOsource, our division for licensing and protecting the Company's UNIX(R) intellectual property, generated $7.3 million in revenue and contributed $5.6 million to gross margin. Our SCOsource initiative continues to gain momentum as we pursue enforcement of the Company's intellectual property rights,' said Darl McBride, president and CEO.
"McBride continued, 'This is our second consecutive quarter with net income and positive cash generated from operations. These results have strengthened our balance sheet and overall financial position. We intend to use this capital to continue our intellectual property protection and licensing initiative as well as for launching SCOx, our Web services strategy.'
"'We expect that revenue for our fourth quarter, ending October 31, 2003, will be in the range of $22 to 25 million. The magnitude of our SCOsource licensing opportunities and our confidence in the SCOsource revenue pipeline is growing each quarter,' said McBride."
Their webcast requires either RealPlayer or Windows Media Player. I don't use either. Evidently GNU/Linux and Apple folks are not invited.
SCO Says It Will Argue Copyright Preempts GPL
Well, they have to try something.
Here's what the Wall Street Journal is saying today (a link would be useless unless you have a sub):
"Now, SCO is preparing to wheel out the software-industry equivalent of a nuclear bomb: It will argue that the GPL itself is invalid, says SCO's lead attorney, Mark Heise of Boies Schiller & Flexner LLP. Mr. Heise says the GPL, by allowing unlimited copying and modification, conflicts with federal copyright law, which allows software buyers to make only a single backup copy. The GPL 'is pre-empted by copyright law,' he says. . . .
"Wednesday, a spokesman said Microsoft thinks 'the industry would benefit' from a court ruling on the GPL. . . .
"James Boyle, an intellectual-property professor at Duke University's law school, says, 'I have a hard time seeing any court saying this license isn't enforceable,' in part because it covers so much important software. 'Courts pay attention to that pragmatically, and it's legally relevant because the consequences [of overturning it] would weigh heavily.'"
You know how they say hearing from your doctor you're going to die soon from a disease is followed by stages, denial, grief, anger, and finally acceptance? I think SCO is in the denial phase. If this is their best shot, somebody needs to arrange grief counselling for them, because it's on the horizon.
Is There Linux Code in SCO's UnixWare?
Ever since the SCO story first broke, a lot of developers have expressed the opinion that if you looked under SCO's hood, you'd likely find some GPL code.
I recently saw a message posted on another site where someone mentioned a specific case where the evidence indicated to him this may indeed have happened. I contacted the writer, Roberto J. Dohnert, a programmer who is the CTO and head consultant for a consulting firm in NC, and whose name I recognized from other things he's written (he's the programmer who figured out that SCO had to be talking about SMP long before SCO told us) and asked him if he'd be willing to write for Groklaw exactly what he found and what his suspicions are.
He had pulled the datasheets for SCO UnixWare 7.1.3 and the datasheets for SuSE Enterprise Server 8, and he noticed that new device drivers in UnixWare matched UnitedLinux, version numbers and all. I asked him to elaborate. He graciously agreed. Here's what he did and what he found and what he suspects:
Comparing SuSE Linux Enterprise Server 8
with UnixWare 7.1.3
By Roberto J. Dohnert
"In July, my company was asked to do a comparison between UnixWare 7.1.3 and Red Hat Linux 9 and SuSE Linux Enterprise Server 8. The client was taking SCO's threat to heart and asked for the comparison in an effort to affect a migration to the UnixWare platform; they thought it was a safe way to dismiss any legal action that might have been directed at them by SCO.
"During the testing and performance evaluation, I discovered that while Red Hat Linux 9 and UnixWare 7.1.3 were as different as night and day, I found the performance ratio and feature set between UnixWare 7.1.3 and SuSE Linux Enterprise Server 8 disturbingly similar so I investigated further. The information I did gather was done through the use of datasheets available from the vendors websites. I was unable to do a source comparison because at this time I am not a Source Licensee by the SCO Group.
"The distributions used were UnixWare 7.1.3 Enterprise Edition and SuSE Linux Enterprise Server 8 (SLES 8) based on UnitedLinux. UnitedLinux is a direct offset of the SuSE Linux kernel and SuSE provides all the kernel packages. I found that several open source packages that are on UnixWare are also on SLES 8. The inclusion of such packages may seem commonplace to some but to me it struck me as odd in regards to the version numbers. The version numbers of all the packages are exactly the same. It struck me as odd because even in the Linux world, most distributions ship with different version numbers of software packages. Below is a detailed list of the packages:
"Java 1.3.1 -04
"Squid Proxy Server 2.4 Stable 7
"On Red Hat 9 the package list for some of the same software is:
"Higher versions of the software were available at the time SCO developed UnixWare 7.1.3. My question was, if SCO wishes to be known as cutting edge, why would they mimic the package list of UnitedLinux instead ? Another thing I found odd was the performance and feature set of kernel level functions. Anyone who uses a SuSE Linux distribution knows the difference between SuSE and other distributions of Linux, both in performance and functionality.
"An example would be APM and ACPI (Advanced Power Management) and (Advanced Configuration and Power Interface). Under SuSE Linux APM and ACPI are turned off by default, You have to enable these functions to activate in the boot process.
"On one of my test machines, a Dell PowerEdge Server, I have to enable APM and ACPI or else 30 minutes into a session the machine locks up. With Red Hat 9 they are turned on by default. With UnixWare 7.1.3, I have to enable these functions to activate in the boot process same as with SuSE or the same result occurs. UnixWare before version 7.1.3 had no, or was lacking, device support for many devices. Upon the new release, it has many new drivers for both USB 1 and USB 2, support for the Xeon processor, PCI-X support, HotPlug PCI, Memory. I have noticed USB devices that don't work with SLES 8, do not work with UnixWare 7.1.3, but under Red Hat Linux they work flawlessly. Also, many of the new device drivers have been working in Linux long before they were available for UnixWare.
"These device drivers were not available on UnixWare until SCO joined UnitedLinux. Many of the quirks that SLES 8 has can be found in UnixWare. SCO has long claimed that UnixWare can scale up to as high as 64 CPU's yet they officially support up to 8 CPU's. The only major difference is the desktops; UnixWare still uses CDE and Panorama while SuSE uses KDE.
"It is my belief and opinion that SCO has indeed borrowed engineering concepts and methods from their association with UnitedLinux. Many of these new features and the remarkable similarity with SLES 8 did not occur until after they started to participate in UnitedLinux and since these features were available to SuSE customers before SCO's involvement I am inclined to believe that SCO's engineering team has been influenced or tainted by the Linux development process. I cannot say if UnixWare 7.1.3 or SLES 8 share common code; as I said I am not a source licensee. I feel these issues need to be investigated further."
If Roberto is right, and an investigation showed common code, then UnixWare 7.1.3 just joined the free world and is now GPLd, and we'd have SCO to thank. Ah! Sweet irony! It just couldn't get any sweeter than that. And the beauty part about lawsuits is: you get to do an investigation. Now, SCO, what was it you were saying about stolen concepts and methods?