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Monday, August 18, 2003

SCO Explains a Bit About the GPL

That's the title of a surreal interview Tuxedo did with SCO's Blake Stowell. Note the Alice in Wonderland logic in this snip:

"Q: Why has SCO not taken any steps to minimize the alleged copyright infractions?

"Blake Stowell responds: 'How can SCO identify this code and still keep it confidential as our contractual obligations specify that we must do? That is the quandary that SCO is in. To address that, we have folks view the code under non-disclosure. The Linux community cries fowl because we require a non-disclosure and refuses to view the infringing code. So what are both sides to do? . . .

"'I'm not sure that there is a law that says we can bill users, but if users are going to continue to use our intellectual property, then they should pay for it. If they don't want to pay for it, then they shouldn't use it. The law does say that we can keep others from infringing our copyrights.'"

So...we shouldn't use it, but we can't see it, so we can't remove it. Curioser and curioser. It's the second article down. Meanwhile, some open source folks have asked SCO today to come up with an NDA that programmers that actually program can sign without destroying their ability to code in the future. Oh, you mean a normal NDA? Why, yes.

Funny, Alice thought to herself. SCO never answered my email, and this one got answered the same day. How very peculiar.

This article, "Sontag and Heise also presented some short snippets of source code that they claimed had been directly copied from SCO's Unix to Linux" at the James Bond-themed SCOForum. I had it right. The metaphor is that SCO will escape seemingly impossible odds. They are David against Goliath, it seems. In alternate universes, anything can happen. If any of you real coders were there, what, pray tell, did you see? I'm hearing rumors, but I need confirmation before I'll run with it. Anybody attend?

comment [] 9:34:26 PM    

SCO Scuttles Sense, Claiming GPL Invalidity
--Eben Moglen, Monday 18 August 2003

Now that the tide has turned, and SCO is facing the dissolution of its legal position, claiming to "enforce its intellectual property rights" while actually massively infringing the rights of others, the company and its lawyers have jettisoned even the appearance of legal responsibility. Last week's Wall Street Journal carried statements by Mark Heise, outside counsel for SCO, challenging the "legality" of the Free Software Foundation's GNU General Public License (GPL). The GPL both protects against the baseless claims made by SCO for license fees to be paid by users of free software, and also prohibits SCO from its ongoing distribution of the Linux kernel, a distribution which infringes the copyrights of thousands of contributors to the kernel throughout the world. As IBM's recently-filed counterclaim for copyright infringement and violation of the GPL shows, the GPL is the bulwark of the community's legal defense against SCO's misbehavior. So naturally, one would expect SCO to bring forward the best possible arguments against the GPL and its application to the current situation. But there aren't any best arguments; there aren't even any good arguments, and what SCO's lawyer actually said was arrant, unprofessional nonsense.

According to the Journal, Mr Heise announced that SCO would challenge the GPL's "legality" on the ground that the GPL permits licensees to make unlimited copies of programs it covers, while copyright law only allows a single copy to be made. The GPL, the Journal quoted Mr Heise as saying, "is preempted by federal copyright law."

This argument is frivolous, by which I mean that it would be a violation of professional obligation for Mr Heise or any other lawyer to submit it to a court. If it were true, no copyright license could permit the licensee to make multiple copies of the licensed program. That would make not just the GPL "illegal." Mr Heise's supposed theory would also invalidate the BSD, Apache, AFL, OSL, MIT/X11, and all other free software licenses. It would invalidate the Microsoft Shared Source license. It would also eliminate Microsoft's method for the distribution of the Windows operating system, which is pre-loaded by hard drive manufacturers onto disk drives they deliver by the hundreds of thousands to PC manufacturers. The licenses under which the disk drive and PC manufacturers make multiple copies of Microsoft's OS would also, according to Mr Heise, violate the law. Redmond will be surprised.

Of course, Mr Heise's statement is nothing but moonshine, based on an intentional misreading of the Copyright Act that would fail on any law school copyright examination. Mr Heise is referring to section 117 of the US Copyright Act, which is entitled "Limitation on exclusive rights: computer programs," and which provides that:

(a) Notwithstanding the provisions of section 106, it is not an infringement for the owner of a copy of a computer program to make or authorize the making of another copy or adaptation of that computer program provided:

(1) that such a new copy or adaptation is created as an essential step in the utilization of the computer program in conjunction with a machine and that it is used in no other manner, or

(2) that such new copy or adaptation is for archival purposes only and that all archival copies are destroyed in the event that continued possession of the computer program should cease to be rightful. As the language makes absolutely clear, section 117 says that although the Act generally prohibits making any copy of a copyrighted work without license, in the case of computer programs one can both make and even alter the work for certain purposes without any license at all. The claim that this provision sets a limit on what copyright owners may permit through licensing their exclusive right is utterly bogus. It has no support in statutory language, legislative history, case law, or the constitutional policy that lies behind the copyright system. Were this argument actually presented to a court it would certainly fail.

The release of this astounding statement is actually good news for developers and users of free software. It shows that SCO has no defense whatever against the GPL; already it has resorted to nonsense to give investors the impression that it can evade the inevitable day of reckoning. Far from marking the beginning of a significant threat to the vitality of the GPL, the day SCO scuttled sense altogether confirmed the strength of the GPL, and its importance in protecting freedom.

Copyright © Eben Moglen, 2003. Verbatim copying of this article is permitted in any medium, provided this notice is preserved.

Eben Moglen is professor of law at Columbia University Law School. He serves without fee as General Counsel of the Free Software Foundation.
comment [] 8:53:38 PM    

What SCO Really Wants

eWeek did an interview with McBride Sunday. Here's the latest from SCO in Wonderland:

" . . .there are some 2.5 million servers running Linux and . . . SCO has 'identified by name those companies running many of them.'

"'We are in the process of contacting them about coming into compliance and taking a UnixWare license from us. If they refuse to do so, we will sue them directly and see them in court,' he said.

"When asked by eWEEK if SCO intended to first sue a large Linux user like a Wall Street financial firm or an enterprise-level Linux customer, McBride said that would probably be the case as smaller companies tend to settle when faced with litigation. . . .

"'In a nutshell, this litigation is essentially about the GNU General Public License and all it stands for. That license has not yet been challenged or tested in court, but it is now going to be. We are also firmly and aggressively challenging the notion that Linux is a free operating system,' McBride said."
[emphasis added]

One thing I like about this guy: he's too aggressively hormonal to be able to be subtle, so now he's spilled the beans, and we know who they are and what they're after. He doesn't want a settlement, he says. He wants to challenge the GPL and all that it stands for. Think a judge will like those words at trial? Heh heh. Courts provide relief for wrongs suffered, not an opportunity to use the judicial system to make a point. At least, that's the way it's supposed to work. And that their motive is to attack Linux is precisely what IBM and Red Hat accused them of in their legal documents. How smart is it to make a public statement confirming their accusation? Boies must be out on a ledge somewhere, threatening to jump.

If they really expected to go to trial, I do think their attorneys would be advising him to be quiet. What normally happens in a trial is the parties speak to the press for the most part only through their attorneys. Seen a lot of interviews with Martha Stewart lately?

If, on the other hand, you have PR goals as opposed to legal objectives... say...their stock didn't start going down again, by any chance, did it? Let's see. August 1, it was $13.24. August 15, it was $10.30. Right now, as the week gets started, at 3:48 PM EDT, it's at $10.50, up 1.94% from an opening $10.27. Woops. Now, it's 4 PM, and it's $10.60, up 2.91%.

What a coincidence. It's interesting to follow the ups and down, every time a new threat comes from SCOland. It's probably infinitely more interesting if you are a shareholder. I'm definitely learning a lot about the stock market, I must say.

comment [] 4:04:37 PM    

Rule 10b5-1 - Trading "on the Basis of" Material Nonpublic Information

If you're like me, you had never heard of Rule 10b5-1 before McBride alluded to it in his remarks about insider trading, reported here:

"Bench submitted a sale plan in January, months before any legal action against IBM was contemplated, McBride said. His agreement called for the sales to begin on March 8. He planned to sell 5,000 shares a month for the next 12 months, according to the plan."

If so, you might like to know what he was referring to and how insiders can trade under a sales plan. Rule 10b-5 is here and says:

"Rule 10b-5 -- Employment of Manipulative and Deceptive Devices

"It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange,
"a. To employ any device, scheme, or artifice to defraud,
"b. To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or
"c. To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security."

Rule 10b5-1 provides affirmative defenses. You can read about that here:

"Subject to paragraph (c)(1)(ii) of this section, a person's purchase or sale is not 'on the basis of' material nonpublic information if the person making the purchase or sale demonstrates that:

"Before becoming aware of the information, the person had:

"Entered into a binding contract to purchase or sell the security,

"Instructed another person to purchase or sell the security for the instructing person's account, or

"Adopted a written plan for trading securities; . . ."

The SEC explains:

"Rule 10b5-1 addresses the issue of when insider trading liability arises in connection with a trader's 'use' or 'knowing possession' of material nonpublic information. This rule provides that a person trades 'on the basis of' material nonpublic information when the person purchases or sells securities while aware of the information. However, the rule also sets forth several affirmative defenses, which we have modified in response to comments, to permit persons to trade in certain circumstances where it is clear that the information was not a factor in the decision to trade."

Rule 10b5-1 was designed to make it possible for insiders to safely trade, as explained here:

"Benefits -- Rule 10b5-1's affirmative defenses are intended to provide relief, as they effectively serve as a safe harbor from Rule 10b5-1 liability. The Rule 10b5-1 Sales Plan sets forth a written contract for the sale of securities, based on a systematic plan/formula set forth by the executive. With a Rule 10b5-1 Sales Plan in place, insiders will now have the ability to sell or buy pursuant to the written plan, even if they have material nonpublic information."

The SEC explains it like this:

"Rule 10b5-1 (entitled 'Trading 'on the Basis of' Material Nonpublic Information in Insider Trading Cases') provides that a person trades on the basis of material nonpublic information if a trader is 'aware' of the material nonpublic information when making the purchase or sale. The rule also sets forth several affirmative defenses or exceptions to liability. The rule permits persons to trade in certain specified circumstances where it is clear that the information they are aware of is not a factor in the decision to trade, such as pursuant to a pre-existing plan, contract, or instruction that was made in good faith."

They have another page to explain that the term "insider trading" may be associated in the public mind with something illegal, but actually it isn't necessarily so:

"'Insider trading' is a term that most investors have heard and usually associate with illegal conduct. But the term actually includes both legal and illegal conduct. The legal version is when corporate insiders -- officers, directors, and employees -- buy and sell stock in their own companies. . . .

"Illegal insider trading refers generally to buying or selling a security, in breach of a fiduciary duty or other relationship of trust and confidence, while in possession of material, nonpublic information about the security. . . .

"Rule 10b5-1 provides that a person trades on the basis of material nonpublic information if a trader is 'aware' of the material nonpublic information when making the purchase or sale. The rule also sets forth several affirmative defenses or exceptions to liability. The rule permits persons to trade in certain specified circumstances where it is clear that the information they are aware of is not a factor in the decision to trade, such as pursuant to a pre-existing plan, contract, or instruction that was made in good faith."

Here is one lawyer's explanation of how it works:

"The most important requirement is that the trading plan be entered into at a time when the person was not aware of material nonpublic information about the security or issuer in question. Equally important is that the trading plan be 'entered into in good faith, and not part of a plan or scheme to evade the prohibitions' against insider trading. . . . .

"The Rule does not require a company to disclose the existence or contents of its executives' trading plans. At the extreme -- but only at the extreme -- the adoption of a trading plan by a significant shareholder might itself constitute an event for which disclosure is required. Other than at that point, disclosure is discretionary. . . . Disclosure in an SEC filing also may increase the probability that in a private securities lawsuit, a court would take judicial notice of a trading plan.'

"Under Delaware corporate law -- which should apply to all Delaware corporations, even in lawsuits based in other States -- there should not be any difficulty with trades made pursuant to a trading plan. This is because the few reported Delaware decisions rely on the theory that an insider should not use information garnered in her position as a corporate insider for her own private profit by making a sale on the basis of that information. As one Delaware court explained, an insider trading plaintiff 'must allege a 'causal link' between specific inside information and each stock sale by each defendant by presenting specific facts showing each sale was entered into and completed on the basis of and because of non-public information.' By definition, under a good faith trading plan, an insider's sales are not made on the basis of information garnered in her position as a corporate insider. Rather, trades are made pursuant to a trading plan adopted before the insider was aware of any material nonpublic information."

So the issue is, I gather, was a plan adopted in good faith before the insider was aware of any material nonpublic information? Here is a 1998 speech by Thomas C. Newkirk, Associate Director of the SEC's Division of Enforcement, that goes in depth into the rule. More info here and here. Groklaw collected news reports on SCO from January here, the second story down. As to what all this means in any particular fact pattern, I couldn't say. You'd need to ask a lawyer. This information is so you can follow news events with greater comprehension by knowing what Rule 10-5b-1 is.

comment [] 2:51:37 PM    

HP VP Pulls Out of SCO Forum Keynote Speechifying

I was expecting this. eWeek is reporting:

"It appears that Hewlett-Packard Co. also got cold feet. As late as last week, SCO was telling attendees that HP would be giving a partner keynote at the forum on Tuesday morning. But on Sunday the schedule of events given to attendees when they registered makes no mention of an HP keynote.

"The keynote that was to be given by an HP executive is now scheduled to be made by Maggie Alexander, a vice president at SCO partner Progress Software.

"However, whatever the reason for the withdrawal of its keynote speaker, HP still sponsored the Sunday night welcome reception at the MGM Grand for Forum 2003 attendees, which was well attended and included food and drinks."

Well attended by whom? Passersby? Or people in the industry outside of SCO and Canopy group? If anyone attended, Groklaw would love a first-hand report. Relying on the mainstream press, well... you know.

comment [] 2:11:13 PM    

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