On MA Decision on Linux, Promissory Estoppel, and Canopy Group
While I am working on my magnum opus, explaining the IBM counterclaims, here are some stories and pieces of information I think you'd like to know about:
1. Massachusetts has decided to switch to open source software (more precisely open standards, including Linux, the first US state to do so. This is a very important moment in history, so I wanted Groklaw to include it. InformationWeek has the AP story by Justin Pope, AP Business Writer:
"Massachusetts, the lone holdout state still suing Microsoft Corp. for antitrust violations, will become the first state to adopt a broad-based strategy of moving its computer systems toward open standards, including Linux, the rival operating system to Microsoft's Windows.
"State Administration and Finance Secretary Eric Kriss said Thursday that the decision, adopted at a meeting of state information officers, was made on 'technical grounds' and had nothing to do with Attorney General Thomas Reilly's pursuit of Microsoft.
"In the technology industry, the term 'open standards' refers to nonproprietary software. Microsoft's software is considered 'closed' because application developers and other programmers don't have free access to the blueprints.
"Kriss said the state's decision was driven by a desire to reduce licensing fees but also 'by a philosophy that what the state has is a public good and should be open to all,' Kriss told The Associated Press. He characterized the decision as the 'most visible concrete action by a state government' to move toward open standards."
There is a little confusion in the story between open standards and open source, but nothing a couple of nicely worded letters can't helpfully clear up.
2. This article points out that Linux is used in an important way not even I knew about:
"Linux, a variant of Unix which can be copied and modified freely, emerged a decade ago and is being used to run the Internet, handle financial transactions and even manage the U.S. nuclear arsenal."
3. Speaking of promissory estoppel, I found a Caldera description of its business that demonstrates how deep into GPL and Linux their business was. If you aren't sure what that expression "promissory estoppel" means in IBM's new court papers, check out Lamlaw's explanation, which is the best I could find. Here's a snip:
" . . .the concept needs all three components to be in place. 1) the promise or obligation 2) the reliance by others upon that promise or obligation and 3) the unfairness that would result if SCO can just wiggle out and claim what they said or did in the past does not matter. You need all three. And, it is even more difficult to understand than that in practice. You also need to convince a judge that the concept should and must apply to avoid an unfair result. . . .
"The question before the court will be whether it would be unfair for IBM to have contributed its code under the GPL, permit SCO to re-distribute that code, permit SCO to add additional services and support based upon that code, all under the same GPL agreement and then permit SCO to simply disavow any and all obligations back to IBM in regard to the work contributed by IBM. In order words, would it be unfair to IBM not to honor the GPL? The answer of course is 'certainly'."
You can't get the concept just from a snip, but in essence, it's a concept in equity, which is when there is no specific law on the books to use, or using it would result in an unfair result, and it'd just be too hang-it-all unfair for the court not to step in and make things right. Those of you who imagine it's impossible to ever get justice in US courts will enjoy knowing that there actually is built in to the system this concept of equity. If you ever, as a kid, said to a parent, "But you *promised*!" you have the idea. In all fairness, once someone makes a promise and the other party relied upon it, the first party shouldn't be allowed to take back the promise if it would hurt the party that relied on the promise. That's promissory estoppel in a nutshell.
Once you get the concept, next check out the wording in this Caldera July 2001 Form S-3, in the risks section:
"OUR BUSINESS MODEL, WHICH RELIES ON A COMBINATION OF OPEN SOURCE
SOFTWARE AND PROPRIETARY TECHNOLOGY, IS UNPROVEN.
"Our business model incorporates as integral elements of our product
offerings both commercial products and open source software.
. . .
"Our business model also depends upon incorporating contributions from
the open source community into our products. The viability of our product
offerings depends in large measure upon the efforts of the open source community
in enhancing products and making them compatible for use across multiple
software and hardware platforms. There are no guarantees that these products
will be embraced by the open source community such that programmers will
contribute sufficient resources for their development. If the open source
community does not embrace products that we view as integral to providing
eBusiness solutions, we will be required to devote significant resources to
develop these products on our own. . . ."
"WE RELY ON INDEPENDENT DEVELOPERS IN THE OPEN SOURCE COMMUNITY, SUCH AS
LINUS TORVALDS, IN ORDER TO RELEASE UPGRADES OF OUR LINUX-BASED PRODUCTS.
"Many of the components of our software products, including the Linux
kernel, the core of the Linux operating system, are developed by independent
developers in the open source community and are available for inclusion in our
products without cost. Linus Torvalds, the original developer of the Linux
kernel, and a small group of independent engineers have in the past developed
and upgraded the Linux kernel. Neither Mr. Torvalds nor any significant
contributor to the Linux kernel is an employee of ours, and none of these
individuals are required to further update the Linux kernel. If these
independent developers and others in the open source community do not further
develop the Linux kernel and other open source software included in our products
on a timely basis, or at all, our ability to enhance our product offerings will
suffer. As a consequence, we will be forced to rely to a greater extent on our
own development efforts or license commercial software products as replacements,
which would increase our expenses and delay enhancements to our products."
So they relied upon Linux and its developers (and one of those developers was IBM), made money from Linux, which they paid nothing for, and publicly stated that Linux was an integral, necessary part of their business.
In their October 31, 2000 10K, Caldera used even more clear and glowing language to describe their Linux-based business, and stated that they fully embraced the open source model:
"Historically, business users have lacked a Linux solution that suits their needs. For Linux to fully support eBusiness, a solution must consist not only of advanced technology but also should be enhanced and tailored for business. This solution must promote the benefits of Linux for eBusiness and provide the proper education and training to facilitate adoption. Proper distribution channels are required to facilitate access to the business user. The Linux for eBusiness solution must be able to accommodate business applications and be able to interoperate properly with the diverse environment of internal corporate information systems and the internet. It must have the flexibility to be maintained centrally or managed remotely. Finally, a solution
must adhere and conform to commercial standards to incorporate the latest
technological advancement and ensure wide acceptance.
"THE CALDERA SYSTEMS SOLUTION
"We develop and market software based on the Linux operating system and
provide related services that enable the development, deployment and management
of Linux specialized servers and internet access devices that simplify
computing. We believe that our Linux solution is a comprehensive solution for
eBusiness. Key benefits of our solution include:
"Focused business framework. We believe we were the first to tailor
Linux open source code from various sources into sound, discrete products that
are usable, deployable and manageable for eBusiness. Our development team
consists of experienced Linux engineers and business professionals. We develop
our products by first carefully choosing the Linux features that are the most
relevant and useful for eBusiness. Then we assemble the code so that it is
logically arranged and works together as seamless applications in which source
and binary code match for logic and order. Our products are then tested for
quality and performance. This enhances reliability and reduces the need for
technical support when used under strenuous business conditions. This process,
known as self-hosting, is unique in the Linux community and accounts for the
high levels of stability and performance of our products. Our products are also
designed to be interoperable with multiple platforms to enable businesses to
make efficient use of existing information technology investments.
" . . . Business customers often rely on solution
providers to recommend which technology to purchase. We provide solution
providers with products, third-party applications, education, training and tools
to effectively facilitate or offer a Linux solution for eBusiness. Solution
providers benefit from the lower maintenance and support costs necessary to
maintain our Linux solution. We offer our services to solution providers on a
"Comprehensive product offerings. We believe that our OpenLinux
technology is the most advanced for eBusiness. OpenLinux is the technology
foundation on which we are able to build multiple products that perform
different tasks. Each product has specific components that can be modified. For
example, our desktop product can be modified to perform client specific
functions such as running business automation applications or accessing the
internet as an email client on hand-held appliances. Our server product contains
modular components that can be configured to run specialized servers such as an
email server or a web site server. We continually enhance the OpenLinux
technology through our development centers in Germany and the United States. As
a result, we are able to incorporate the latest Linux enhancements or
modifications into our products. Our business experience enables us to build
relevant business enhancements to Linux through add-on segments of code that
connect to the core source code. These enhancements include web administration
applications, the Caldera Systems open administration system, and an easy-to-use
Linux installation wizard. We also offer our products in multiple language
"Complementary value-added services. In order for businesses to
implement our product offerings, we provide a wide range of valuable services.
We believe that our service offerings provide significant benefits for
eBusiness. These service offerings include:
" - Technical Support -- Our technical support provides assistance during installation and operation of OpenLinux;
" - Consulting and Custom Development -- Our consultants have extensive
technological and business knowledge, which allows us to assist our
electronic solution provider customers in implementing Linux solutions;
" - Hardware Optimization and Certification -- Our consultants can optimize
OpenLinux for a specific hardware platform and provide a rigorous testing
and certification process; and
" - Documentation -- We provide consistent and up-to-date documentation on
Linux that is not readily available in the open source development
" Comprehensive, distribution-neutral education and training. Many
companies are delivering different versions of Linux called distributions. We
provide a comprehensive distribution-neutral training program for Linux. Our
courses focus on educating and training the business community on Linux's
benefits for business use. We offer a comprehensive set of courses designed to
prepare students to develop, deploy and manage Linux in a business environment,
including system, network and internet administration and programming. A student
who has successfully completed our courses will be proficient with the leading
distributions of Linux. We offer high-quality instructor-led training through our own training
center at our headquarters and also offer our educational programs indirectly
through our Caldera Open Learning Providers around the world.
"Business community catalyst and open source advocate. We believe we
were the first Linux provider to introduce an open source operating system
designed for the business environment. By demonstrating to key information
technology companies such as Corel and Netscape that open source systems can
work well with proprietary systems, we believe that we have sparked the interest
of more conservative technology adopters and accelerated acceptance of Linux for
business use. We help port, or convert, business applications to the Linux
platform and offer ways to incorporate those products into existing systems. We
are a major driver of Linux standards based initiatives such as Linux
Professional Institute, or LPI, an independent organization dedicated to the
establishment of professional certification standards for Linux professionals,
and Linux Standards Base, or LSB, an initiative that is designed to standardize
application development for the Linux platform. An application that meets all
the criteria for LSB should work on all compliant distributions of Linux. If LSB
is widely adopted, we believe it will significantly reduce the fragmentation of
"We fully embrace the open source model and continuously contribute
tools and technology to the open source community. We give away CD ROMs
containing our Linux operating system at trade shows and allow it to be freely
downloaded from the internet to encourage interest. We foster multiple
development projects over the internet and help each project progress smoothly." [emphasis added]
So, they said they were a Linux company, not just a Linux company, but more than that, the first and the best in the ebusiness space, that Linux was an integral part of their business. Furthermore, they joined Linux groups and taught Linux and gave away CDs of it and promoted it in every way possible. IBM took them at their GPL word, and made certain business decisions itself, based on Caldera's public position, and now Caldera (SCO) is trying to shift into reverse. That would leave IBM financially damaged, IBM is arguing, so even if SCO could prove every single legal issue, ha ha, it'd be too unfair to let them do it and get away with it. Equitable relief is great, because you are letting the judge do the right thing, no matter what the strict letter of the law might say, or even if there is no law on the books for him to use. It's really up to him to figure out a solution he thinks is fair. Now try to imagine what SCO's equitable rejoinder could be: can't think of anything? Me neither.
4. IPO Litigation: The same Form S-3 referenced above also explains the litigation surrounding their IPO, which I thought you might enjoy knowing about:
"Since July 11, 2001, three complaints have been filed in the United States District Court for the Southern District of New York alleging that our
predecessor, Caldera Systems, Inc., various of our officers and directors and
various of the underwriters involved in our initial public offering violated
federal securities laws. The complaints allege, among other factual bases for
the claims asserted, that a registration statement dated January 10, 2000 and a
prospectus dated March 21, 2000 for the public offering of 5.0 million shares of
Caldera Systems' common stock contained material misrepresentations or omissions or both. The complaints further allege that the misrepresentations and omissions consisted of, among other things, the failure by Caldera Systems to disclose in the registration statement and the prospectus that the defendant underwriters
received compensation for the distribution of securities in the offering from
parties other than Caldera Systems. The plaintiffs seek certification of the
actions as class actions, an unspecified amount of damages suffered by the
plaintiffs and the other members of the class, if any, rescission to the members
of the class, if any, who do not continue to hold Caldera Systems common stock
and attorneys' fees and costs. We have not been served with notice of the
complaints. We intend to investigate the claims in the complaints and take
action as we deem appropriate."
5. And then the document goes into some intriguing detail about indemnification of directors and executives, explaining that the SEC has told them that the DE indemnification clause is not enforceable in the SEC's opinion with regard to securities infractions, being against public policy; however, SCO plans to bring that issue to court to challenge the SEC's opinion should the need ever arise:
"ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
"The Registrant's amended and restated certificate of incorporation to
be in effect upon the closing of this offering (the 'Certificate') provides
that, except to the extent prohibited by the Delaware General Corporation Law,
as amended (the 'DGCL'), the registrant's directors shall not be personally
liable to the registrant or its stockholders for monetary damages for any breach
of fiduciary duty as directors of the registrant. Under the DGCL, the directors
have a fiduciary duty to the registrant that is not eliminated by this provision
of the Certificate and, in appropriate circumstances, equitable remedies such as
injunctive or other forms of non-monetary relief will remain available. In
addition, each director will continue to be subject to liability under the DGCL
for breach of the director's duty of loyalty to the registrant, for acts or
omissions which are found by a court of competent jurisdiction to be not in good
faith or involving intentional misconduct, for knowing violations of law, for
actions leading to improper personal benefit to the director, and for payment of
dividends or approval of stock repurchases or redemptions that are prohibited by
the DGCL. This provision also does not affect the directors' responsibilities
under any other laws, such as the Federal securities laws or state or Federal
environmental laws. The registrant intends to obtain liability insurance for its
officers and directors prior to the closing of this offering.
"Section 145 of the DGCL empowers a corporation to indemnify its
directors and officers and to purchase insurance with respect to liability
arising out of their capacity or status as directors and officers, provided that
this provision shall not eliminate or limit the liability of a director: (i) for
any breach of the director's duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) arising under
Section 174 of the DGCL, or (iv) for any transaction from which the director
derived an improper personal benefit. The DGCL provides further that the
indemnification permitted thereunder shall not be deemed exclusive of any other
rights to which the directors and officers may be entitled under the
corporation's bylaws, any agreement, a vote of stockholders or otherwise. The
Certificate eliminates the personal liability of directors to the fullest extent
permitted by Section 102(b)(7) of the DGCL and provides that the registrant
shall fully indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or proceeding
(whether civil, criminal, administrative or investigative) by reason of the fact
that such person is or was a director or officer of the registrant, or is or was
serving at the request of the registrant as a director or officer of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, against expenses (including attorney's fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding.
"Other than the litigation identified under "MATERIAL
CHANGES -- LITIGATION" above, at present, there is no pending litigation or
proceeding involving any director, officer, employee or agent as to which
indemnification will be required or permitted under the Certificate. The
registrant is not aware of any threatened litigation or proceeding that may
result in a claim for such indemnification. . . .
"Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
6. Finally, I think it's time to start doing some research on Canopy and the Noorda Family Trust. Anything you find of interest, please send my way. I've found some interesting tidbits myself, and I'll share as soon as I double check all my facts. Meanwhile, take a look at this interview with Ralph Yarro, head of the Canopy Group, in the Salt Lake Tribune, which portrays him as gungho and proud of his company's backing of SCO's lawsuit. It's the first I've seen where the link between Canopy and this litigation is so boldly acknowledged. On the face of it, it would seem to be the last thing Canopy would want to admit, for any number of legal reasons. But here it is, plain as day. After mentioning Canopy's previous and successful lawsuits, it talks about SCO:
"Now, through SCO Group's controversial claims on the freely distributed Linux operating system, Canopy finds itself in a three-way federal court battle. Claiming SCO's proprietary Unix code has shown up in Linux, Canopy's offspring seeks up to $50 billion from computer titan IBM -- even as it fights off a pre-emptive suit from leading Linux distributor Red Hat Inc.
"Ralph J. Yarro, Canopy's president and chief executive, cannot help but relish his company's feisty, litigious reputation, even as he argues it is undeserved. Multimillion-dollar settlements from big-name companies make headlines, he says, but the dozens of tech companies and thousands of Utah jobs Canopy has helped create are its true legacy.
"'I would prefer to be a peacemaker than to fight,' Yarro says. 'But I don't have the luxury to pick who steals from us, who attacks us. All I can do is decide whether or not we will defend ourselves.'
"Once that decision is made, the commitment is total. 'We don't care how big you are. If you mess with us, we're going to take you on, even to our utter destruction, whatever occurs. We fear nobody, and we are respecters of no persons.'"
From his lips to God's ears, as they say -- to their utter destruction, then. I was so surprised to see this interview at this point in time that it made me start to think. Are their lawyers unable to make these people be quiet? Does Canopy realize the jig is up and they might as well go down swinging? Or what is the card they think they are yet to play that makes them so reckless of obvious danger? I don't know, but I think it's time, threats or no threats, to start looking more closely at the Canopy Group and the Noorda connection. Are you in?