Sunday, October 19, 2003
SCO Asks the Red Hat Judge Not to Give Them Their Day in Court Part Two
Then, bully fashion, SCO tells the judge that if the court does not dismiss for lack of jurisdiction and does not dismiss by exercising its discretion (the two arguments SCO has so far advanced), it should either stay the Red Hat action until the IBM case is finished or "transfer it to Utah where the previously-filed IBM action is currently being prosecuted." Now I am laughing out loud. Looking for a little home town advantage, eh? Like the judge is going to do that. Both SCO and Red Hat are Delware corporations. Red Hat's home town advantage venue, though, would be North Carolina, where it is located physically. So Delaware is kind of neutral territory, and the judge isn't likely to send the case to another state where one of the parties will have an advantage. I just can't see that happening, barring other factors I don't know or have somehow missed. I think SCO knows she isn't likely to grant that request, so it adds a threat:
"Indeed, if this Court does not dismiss this action, SCO intends to file a motion to stay and/or transfer to Utah."
Judges love to be threatened. They teach a course in how to do that in law school. That's how effective that technique is. Not. It seems that what SCO wants is a time delay, by hook or by crook. If they can't get it from the judge one way, they'll get it another way. I don't think judges like to be told what to do Or Else. They are hoping, perhaps, the judge will find them so aggravating to deal with, she'll just send them to Utah to get some peace. I know I'd like to send them someplace to get some peace. But she has other options. Judges have a lot of options, particularly in fashioning declaratory judgment relief.
SCO's conduct doesn't violate the Lanham Act
Section II begins the section in which SCO tries to tell the judge that they did not violate the Lanham Act. It sets forth the five elements that Red Hat must meet to establish a Lanham Act claim, a) a false or misleading statement about its product or another's product; b) deception or a tendency to deceive a considerable portion of the relevant consumers; c) significant deception likely to influence purchasing decisions; d) that the goods advertised are in interstate commerce; and e) a likelihood the plaintiff will be injured. So far, so good.
Then, SCO trots out the argument that Red Hat has no product, because it has no proprietary interest or ownership in Linux 2.4 and 2.5 kernels and that "indeed no one has such an interest". Well, now, why do they say that? Because they claim no one purchases the kernel because, they say, it's "free". I don't believe they are saying this out of confusion over is it free as in speech or free as in beer. They are saying it because unless you have goods in interstate commerce, you can't bring a Lanham Act claim. You can read about that here.
Standing for a claim of false advertising, which is what Red Hat has accused SCO of, "requires plaintiff to be a competitor," they say, and because the kernel is freely distributed, Red Hat can't allege any ownership interest. My, how they struggle with the GPL.
I can't see any judge buying such an argument, because it isn't factually true. Even if the judge did buy it, on appeal she would be reversed. True facts are what judges are looking for, most particularly. This section simply beats all for knock-down, drag-out gall. The funny part is, I bet they congratulated themselves when they thought it up.
I think when this is all over, I might write a book about this case, and the theme, beyond just telling the SCO saga and Groklaw's story, will be how the GPL tripped up some of the best lawyers on the planet and made them fall down and go boom.
This must mean they have absolutely no one on their side who is a GNU/Linux person, or he or she would have explained the GPL to them before this document was submitted. Do you realize how many wins we have had already, just from SCO's absolute incapacity or unwillingness to understand the GPL? The only hope they have, and it's a long shot, is that the judge suffers from a similar incapacity.
But is it really an authentic inability to comprehend it? Let's look at the evidence. First, they are lawyers. They read licenses for a living. Caldera released its products under the GPL for years. No, let me correct that. They *sold* their products for years, released under the GPL. So do they know that GPL code can be sold? And that a company can have a copyright interest in GPL code? Obviously, they do. They contributed code to the kernel themselves. Canopy's Ralph Yarro just did an interview in which he stated that many of the companies in the Canopy Group are Linux companies. This isn't Greek to them. So do they believe the nonsense they just told the judge?
SCO is protected by the First Amendment
Finally, in section III, we reach the end of their three arguments, that they are protected by the First Amendment and can therefore say all the bad things about Linux they want to. Besides, they say, Delaware lets you say bad things if you are involved in a lawsuit and it's speech in that context. Their line of reasoning goes like this: commercial speech has a lesser protection under the First Amendment,
but their speech wasn't altogether commercial. It has some "protected, non-commercial elements". They quote from a case that they themselves say "is not controlling in this instant matter", to which this reader's reaction is, why, then waste my time with it? The reason they quote it is because the judge in the case wrote about there being speech in publications in that case that "clearly contained elements of both" commercial and noncommercial speech. SCO analogizes itself. It didn't make product comparisons denigrating Red Hat's product , they argue, (and since they are claiming Red Hat has no product, it's no wonder they feel free to make that argument), but rather all SCO's statements "involve expressions of its legal rights, granted by copyright and contract law". But fellows, maybe you forgot, the IBM case isn't about copyright infringement. It's a contract case, so anything you said about copyright infringement wouldn't be protected by your participation in that lawsuit. You didn't send IBM one of those 1,500 letters, did you?
Next SCO mentions another case, Riley, which they also acknowledge isn't apposite to the instant case. And indeed reading the quotation about the public need to hear "information and advocacy" about charitable contributions, the subject matter of that case, it's hard not to wonder what are they thinking.
Well, reading on, they explain, with flowery detail, that this case involves public issues of importance. It's not just a commercial dispute between the makers of two products. It's about the noble quest to establish that IP has value and must be protected, and because of that, they should be allowed to say bad things about Linux 'til the cows come home, because the public has an interest in the issue and needs to hear it discussed. Oh. It's a public service they are performing when they attack us.
Then they make the single most incredible argument I have ever seen in any case I have ever read in my entire life. It deserves some bold type: They actually argue that the GPL is designed to destroy the economic value of copyrights.
This is beyond wrong. It's Alice in Wonderland, off-with-their-heads talk. They can't be lying here, can they, no matter what the evidence may be for that in other sections, because they'd know then that their argument is laughable? If my attorney offered such an argument on my behalf, I believe I'd report him to the Ethics Committee or sue for malpractice. But no, they aren't kidding. They somberly wrap themselves in a cloak of self-righteousness, like the Man of La Mancha, and seriously argue the point. Their Point of Points.
I had to take a break and just laugh for a while and then come back to this, because it's so incredibly enjoyably, deliciously silly. As one Grokker noted in a comment here the other day, this must be the Attack of the Pointy Headed Bosses (PHBs). In Utah, copyright trumps the GPL, SCO says. In Delaware, the GPL destroys copyrights. No. Not enough. It's designed by evil masterminds to destroy copyright. I'm thinking they may want to rethink their plan to get this case moved to Utah. Somebody might notice they speak with forked tongue.
OK, here's what they say on the holy topic of copyrights: essentially, they accept as true that no one will pay for software that can be freely downloaded. Ipso facto, the GPL is against money for software. Really, that's what they say, only they say it in highfalutin' legalese, with a fervor worthy of Joan of Arc:
"The reason this line of argument is relevant and important in the instant case is that the speech Red Hat complains of is entirely and unequivocally intertwined in SCO's attempts to publish and defend its intellectual property rights, including copyright and contract rights, protected by law in the face of withering pressure by Linux software advocates to make operating system software free and thereby destroy the economic value of software copyrights so highly protected under the U.S. Supreme Court cases cited above. The speech must be protected because it involves critical and timely public issues about legal rights of the type held by SCO. As such, SCO's speech in this case involves an issue of significant importance to our digital society; it is not just an issue between Red Hat and SCO."
I'm not making this up. They really said that. They then sneak into the document, as if it supported how important this subject is to us, the public, the fact that there is a mountain of press about this case, (and it's handy to collect because they have paid their PR company to create it), as if it were a demonstration of the importance of the sacred topic they advance, as opposed to being a combination of paid-for PR results and the public's fascination in watching this company commit suicide-by-judge before our very eyes. It's like a car wreck. You just have to look.
I think I may safely state that none of the hundreds of thousands of readers who visit Groklaw every week do so because they are interested in the question as framed by SCO here, because despite the insignia SCO has sown onto its banner and held high as they unjustly charge the Linux community, we know that one of the freedoms of the GPL is the right to sell GPL software, yes, sell it... for ...gasp...money. Here is the relevant information from the GPL FAQ page:
" Does the GPL allow me to sell copies of the program for money? Yes, the GPL allows everyone to do this. The right to sell copies is part of
the definition of free software."
SCO may find it incomprehensible that anyone would pay money for something they can get for free, but I do, for one, because I find it more convenient to buy CDs than to download. So, there you go. I am a witness that they are ... I debate which phrase of Linus Torvalds to insert here. I'll leave it to you. Feel free to be creative and build on his work, in true open source fashion. (Just check for copyrights first, you pirates. And prior art. And none of that "don't ask, don't tell" use of other peoples' methods and ideas, either. What? No ideas left? Then stop being creative. There are more important things in the world than progress. Like money, for instance.)
How are copyrights going to be protected in a digital age, SCO calls out to the judge full-throated, if SCO can't speak out? Listen, guys, you can calm down. Nobody wants your worn-out UNIX code. We've told you from day one: if you can show us any infringing code, we'll take it out that very day. We don't want it. Problem solved. There is, therefore, no need for your quest, you phonies. And the GPL, in fact, relies upon copyright. You could say it is built on it. That's how much it isn't attacking copyrights.
Your Impossible Dream has nothing to do with protecting your copyrights, we don't believe. What we think you want is to steal *our* copyrighted code and get the masses so worked up with hypocritical arguments in the media that they will let you do it, so you can make out like bandits from code you didn't write and have no "proprietary interest" in. We also believe you may have already stolen our code and are terrified we'll find out you have taken our copyrighted, GPL work and put it in your proprietary, hidden software code. If you've done that, you would need to destroy the GPL before anyone finds out and makes you either take out the code or GPL your own software.
So, recovering my composure, that is their argument. They should be allowed to badmouth Linux because it's a newsworthy topic of "public importance that cannot be overstated." I think I'll lose my composure again for one little minute, long enough to say this: people died for the First Amendment. The founding fathers of America believed in the values expressed in the Constitution deeply enough to give their lives to make it a reality. To see SCO debase the First Amendment by using it try to shield their weasel behinds from the legal consequences of their low-down, mean-spirited, unprovoked, dishonest attacks on the GNU/Linux community is a kind of, well, a kind of secular blasphemy. Yes. No less.
They are telling the judge and the whole world a lie: that the GPL is attacking their copyrights. They want the judge to allow them to tell this lie, because lots of news clippings show people are interested in hearing what they have to say. How noble. How inspiring. How rotten to the core. They know, because we have told them, in public and in private, that we don't want their copyrighted code.
What they are not telling the judge is an ugly truth: they can't compete with GNU/Linux software and they want to use the law to prop up their dying business. What a quest. The right to use lies in the media and the law to destroy your competition instead of competing in the marketplace fair and square. I guess the scripture is true: some people really do worship money. SCO is all worked up about losing money because a better product than theirs has come along that people prefer. How dare the community come up with a better mousetrap? And a product they can't steal or coopt? That is their real beef, but they don't dare to say it that plainly.
Happily, we're done, because my lip is curling so much, I might tip my chair over.
There is also a letter attached, from Mark Heise, one of the SCO attorneys in the IBM case, offering to testify as a witness in the Red Hat case about two things: the letter SCO sent Red Hat after Red Hat apparently asked SCO to sign a stipulation that it would not sue them or Red Hat's customers, and SCO refused. He's willing to testify about that settlement letter. That indicates to me that SCO is plenty worried about how those discussions went leading to that letter and they feel they must tell their side of the story, because the letter doesn't look so good. Then he offers to testify about the GPL. The GPL? Now that I'd pay money to see. Mark Heise an expert witness on the GPL. He's such an expert, he attaches the GPL itself, which so far from attacking copyright law says this about how the GPL protects your rights:
"We protect your rights with two steps: (1) copyright the software, and (2) offer you this license which gives you legal permission to copy, distribute and/or modify the software."
Yes, that is what it says. The first step is to copyright the software. That's what the GPL is built on, you befuddled and/or hypocritical SCOfolk, on copyright law. Later, in the GPL exhibit, it adds:
". . . each file should have at least the 'copyright' line and a pointer to where the full notice is found."
Then it gives an example:
"one line to give the program's name and an idea of what it does. Copyright yyyy name of author"
I hope this judge reads exhibits. If she does, she surely will not miss that, even if SCO's "GPL Expert" Heise did.
Do they think they can fool the judge with this argument? Unless she is a lot stupider than I am, I'd say that is unlikely. And by the way, Judge Robinson is far from stupid.
I have to say that predicting court cases is risky business. And it's certainly true that judges do try to consolidate two cases for the sake of judicial economy. But if the judge grants SCO's Motion to Dismiss or sends this case to Utah or grants a stay, I'll be more than surprised.
But I don't expect that to happen. For one thing, SCO didn't ask for the judge to send them to Utah or for a stay until after Red Hat had already responded. Now it throws in the idea, but not by means of a motion, and as a result Red Hat has no opportunity to respond. The odds of SCO getting a yes on either request on this document seem extremely slim, therefore. Unfortunately, SCO has already told us that they won't take no for an answer and will file yet another motion as soon as this one is denied, if it is. I don't know how long it'll take for the judge to get sick of SCO's delaying tactics or to recognize them for what they are or even if she will. But she should. I hope it won't take long and that she'll give them short shrift, but there are no guarantees in a courtroom. I do have an opinion, however, on the merits of this document. I was decidedly underwhelmed. And I hope Judge Robinson feels the same. We should know in about a month.
SCO Asks the Red Hat Judge Not to Give Them Their Day in Court Part One
I said I'd dissect SCO's Reply Brief in Support of Its Motion to Dismiss, so, picking up my knife with gusto, here goes.
First, it is a cynical document. The overview is that they are asking the judge to either dismiss Red Hat's case or, failing that, either grant them a stay until the IBM case is settled or consolidate the two cases by sending the Red Hat case to Utah. They warn her they will submit a motion requesting that relief, if she fails to grant SCO's Motion to Dismiss. Both a stay and a consolidation would mean Red Hat'd have to wait years for any relief. In short, SCO doesn't want to talk about their proof this exact minute, so they would rather not have their day in court.
Oh, and SCO says the GPL is trying to destroy copyright law. And furthermore, the GPL forbids proprietary ownership, so that means no one can own it. They do know better, but that is what they wrote to Judge Robinson. I guess they hope that she doesn't know any better.
You have two choices wading through their spinach: either laugh or throw up. I leave it up to you. There is a third choice, I suppose, nod off. But when your enemy is talking, I think it's prudent to pay close attention. So, let's hold our noses and dig in, going through the document sequentially.
You might want to review the information on declaratory judgments on this page, beginning at the heading "3.The Declaratory Judgment Act." It will help you follow along, although its focus is patents, and it's harder to get a declaratory judgment in a patent case, and this case isn't about patents, so bear that in mind. Remember this all began with Red Hat filing for a declaratory judgment, followed by SCO's Motion to Dismiss, which Red Hat opposed, and now SCO is replying.
SCO's Reply is divided into three basic arguments:
1. The Court lacks subject matter jurisdiction
2. SCO's conduct does not violate the Lanham Act
3. Red Hat's Lanham Act claims are barred by the First Amendment
The Court Lacks Subject Matter Jurisdiction
This is the section that is the longest. It's the part where they try to convince the judge that there is no actual controversy in the declaratory judgment sense, because they say they didn't threaten to sue Red Hat. If they can get the judge to agree with them on this one point, the declaratory judgment request by Red Hat is dismissed. That's why they spend the most time on this. Also I expect they spent a lot of time on it because it's their weakest area, because they surely sounded like they were going to sue Red Hat to you and to me. Now they must persuade the judge that they never said that and nothing that they said or did meant it either.
They start by complaining about Red Hat using selected quotations that they say are misleading. That's to get the judge to think badly about Red Hat. But the truth is, you have to cut the quotations you use somewhere, so that's just a judgment call. They, however, try to paint it as deliberately done to make points underhandedly. Yawn.
Next, they say that Red Hat lacks a protectable interest in the Linux kernels, the 2.4 and 2.5 kernels at issue, because the GPL "prohibits any proprietary interest and provides that they may be freely copied by anyone."
This silly and false statement is actually a very devilish use of the word "proprietary". When we talk about open source versus proprietary software, we mean that proprietary is the kind where you are not allowed to look at the code. Open source is the kind where you can. Usually, proprietary companies are corporations like SCO or Microsoft. So, when I hear the phrase,"proprietary software", I'm thinking along those lines.
But in the law, proprietary means something else, and they are trying to confuse the two in the judge's mind, or at least in the public's mind, so she'll think Red Hat has no proprietary interest because it's not a proprietary software company. She won't be confused, but I'm guessing they hope the rest of the world will be. Or maybe they are confused themselves.
Here's the legal definition of the word "proprietary" as used in the law, from Steven H. Gifis' "Law Dictionary", 2d Edition:
"Proprietary: owned by a particular person."
First, the GPL does not forbid owning the code. You can't GPL your code unless you do own it. Second, the Linux kernel is copyrighted code, with the GPL license on top, and the GPL does not negate the copyright interest. The kernel has many authors, who each have a copyright in their portion of the kernel, the part they wrote. In turn, there is a collective copyright in the total kernel. Do you have a proprietary interest in code when you own the copyright? Obviously, yes.
And while anyone can download it, that doesn't mean they can do whatever they please with it. There are license terms. License terms means somebody owns the code and lets you use it, subject to the owner's terms.
Second, Red Hat has a copyright interest ownership in the portions of the kernel it wrote, and they have their own distribution, which is "proprietary" in the legal sense, available by subscription and you can also buy it as a product in a box at places like Amazon, or any other distributor, and you can also sign up for various subscription plans and there are different support contracts for most of their products. Does that sound like a commercial enterprise to you? All of their products include the kernel. It's an integral part of what they are selling. Also we should note that the RedHat Enterprise Edition kernel is not a stock kernel.org kernel, but one that has been customized by Red Hat, and this customized kernel is what they offer in all of their product offerings. They also allow you to download some of the software for free, if you know how, but then you are on your own.
So, does the GPL forbid code being owned by a particular person? No. It does not. It requires it. Does Red Hat, as one of the authors of the copyrighted code they wrote and donated to the kernel, have ownership rights over that code? Yes. Does Red Hat, then, using the legal definition, have proprietary rights to the kernel? Yes. You see how devilish this argument is? They are trying to confuse everyone by using a word that has both a legal meaning and a marketplace meaning that essentially are contradictory. You'll see later why.
The way they wrote this part, SCO seems to be trying to argue that proprietary code, in the general business meaning of the word, meaning owned by a company that forbids you to look at the code, is the only kind that can be protected under the law, and the proprietary business model, as opposed to the open source model, the only one the legislators intended to protect. Very crafty. Very wrong, but very crafty.
Next, they argue that there was never a "direct threat" against Red Hat. Their initial argument could be summed up as saying, "We never said the exact words, 'We are going to sue you,' so there was no direct threat." They also state that SCO never directly contacted Red Hat, so that proves they didn't make any direct threats. Actually, what it proves is that they failed to mitigate their damages, if any. Then they sum up by saying, "So, you see, your honor, there was never a direct threat of litigation."
The law doesn't require a direct threat. Indirect will do. They know that, so SCO goes on to discuss whether the totality of the evidence supports there being a reasonable apprehension of suit from other types of statements and actions that could be viewed as an indirect threat sufficient to justify Red Hat coming to court for relief.
Here, they sound like a battering husband, explaining his wife's screams to the police when they show up at his door. "It's nothing. She's just excitable." Its first specious argument has to do with the statement by McBride that there would be "a day of reckoning" for Red Hat. They downplay that, saying he didn't mean litigation against Red Hat. No, no, nothing of the kind. He meant if SCO won the IBM suit, Red Hat would then have the opportunity to pull out the offending code and voluntarily pay up for any past offenses.
Right. No threat there.
Anyway, the law isn't interested in what he meant, as I understand it. It's interested in what Red Hat thought he meant and what a person of normal intelligence would have understood his words to mean. If someone told me I'd hurt them and now I'd face a day of reckoning, I'd take it as a threat. Wouldn't you? Some things are just obvious.
Red Hat argued that the 1,500 letters sent to its customers or potential customers alone constitutes a threat, but SCO says they have taken their words in that letter out of context by not quoting them in full. When they said they would vigorously defend their IP rights, they meant by means of the IBM lawsuit, not by suing Red Hat or end users.
Juxtapose that with McBride's statement in Friday's teleconference that SCO leaves open that very possibility, as reported in this news story:
"SCO is in the process of following up on letters sent to 1,500 enterprises this year, advising them that they may be in violation of SCO's intellectual property rights in their use of Linux. 'Our goals is not to go out and start suing companies,' McBride said. 'But, as we go down that path, if we have certain companies out there that are using Linux and we're unable to come to a resolution or reach an impasse, then we absolutely will reserve the option of (taking) the legal path as the remedy to go resolve that.'"
So, which party correctly interpreted the letter? And of course, that isn't an isolated remark. Just this week, a headline in TheStreet.com called them "Litigious SCO". And for more, just click on our new Quote Database, and you will see a long list.
Even if it were true that the phrase in the letter about a vigorous defense of its IP referred to the IBM lawsuit, the phrase doesn't preclude other actions in addition to the IBM lawsuit. And if that were all SCO meant, why send warning letters to the 1,500 companies at all? See, this is why people hate lawyers. Red Hat argued that threatening its customers was sufficient to qualify as a threat against them. Take a look at this spin SCO's lawyers put on that ball:
"Moreover, the statement in SCO's letter that 'legal liability that may arise from a Linux development process may also rest with the end user,' similarly does not rise to a threat by SCO against Red Hat customers. This observation does nothing more than raise a theoretical question subject to various interpretations and legal arguments. Clearly, this statement does not place a customer in reasonable apprehension of suit, since it does not include an 'unmistakable threat of litigation.'"
Is that what you got out of that letter? That nobody would be sued? They were just having a theoretical legal discussion? And that SCO never intended to frighten folks into buying a license? We here on Groklaw sent them a letter that if they tried to enforce their threats, we'd take legal action. Would we have done that if we didn't believe there was a threat against us, the end user? I have several Red Hat distributions that I paid for, so I'm a Red Hat customer.
The license they are offering precisely guarantees they won't sue you if you buy it; if there was no threat to sue, exactly what have they sold those poor saps who signed up? If the answer is nothing, I think fraud might come into the equation, and not just in a theoretical legal discussion, either.
Next, SCO says Red Hat hasn't identified a single customer that SCO has accused of infringement. Well, now, that depends on whether you accept their interpretation of why they sent those 1,500 letters and why they are selling those licenses. Here, SCO is hoping for a TKO.
SCO tries to undermine Red Hat's use of the case Aralac, Inc. v. Hat Corp of Am., 166 F.2d 286, 292-93 (3d Cir. 1948). I can't find a free version of for you. It's an old case, so it's hard to find on the internet, except through paid services like Lexis. I did find a dissenting opinion by one judge, (the dissent wasn't about the case) that mentions this case. I don't think SCO would like the use to which it was put by this judge in his dissenting opinion in Alagrant v. Evergreen Valley Nurseries, LTD.:
"Bearing in mind the remedial character and legislative
purpose of the Declaratory Judgment Act, we have
repeatedly emphasized that the Act should have a liberal interpretation. Exxon Corp. v. Federal Trade Comm., 588
F.2d 895, 900 (3d Cir. 1978); Simmons Aerocessories v.
Elastic Stop Nut Corp. of Am., 257 F.2d 485, 489 (3d Cir.
1958); Aralac, Inc. v. Hat Corp. of Am., 166 F.2d 286, 291
(3d Cir. 1948). Indeed, federal courts's jurisdiction over
declaratory judgment actions are limited by just two
primary considerations: the action must present a case or controversy and it must be ripe for disposition." [emphasis added]
So this judge believed that the case stands for the proposition that judges shouldn't dismiss declaratory judgments , which is what SCO is asking its judge to do, if they meet the two simple tests he lists, that there is a controversy and that the case can be settled by a declaratory judgment. By that reasoning, SCO would likely lose.
SCO then launches into an argument that because Red Hat doesn't control the kernel, it has no "proprietary interest", and hence there can't be an actual controversy. It does control its own customized version of the kernel. Note how they describe it on their web site:
"All products in the Red Hat Enterprise Linux family are based on a common software core--kernel, libraries, development toolchain, and utilities. This provides a homogeneous environment ideal for simplifying multi-system and desktop-to-datacenter configurations. The immediate benefit: simplified deployment of distributed applications, and a consistent environment for users and system administrators across the entire family. . . .
Introduced in September 2003, Red Hat Enterprise Linux, version 3, includes a broad range of new features: .... Based on Linux 2.4.21 kernel: Red Hat Enterprise Linux uses the latest stable Linux kernel with numerous additions from the Linux 2.5/2.6 kernels."
In short, they roll their own, so SCO is all wet here. And, they also have copyrighted code their employees were paid to write and contribute to the kernel, so that also gives them a proprietary interest. They are trying to negate all of this obvious evidence of Red Hat being a company with goods in interstate commerce, a requisite for Lanham Act claim, by saying that they lack a proprietary interest because anyone can dowload the kernel freely over the internet.
What are the odds of a judge agreeing with that novel concept of commercial and copyright law, that you have no ownership interest if you ever allow anyone to have a copy for free? If that were so, then SCO had and has no ownership interest in OpenLinux, because it's still available for download under the GPL license and it has been for years and years. Poof. Copyright gone, ownership interest gone, if we accept SCO's nonsensical argument. If Red Hat has no ownership interest, then neither do they. Do they know all this? What do you think?
If their reasoning were correct, then Microsoft has no proprietary interest in Internet Explorer. You can download that for free over the internet too. Ah, but it has a EULA, so it isn't just a free-for-all. The Linux kernel has a license too, the GPL, and it's not a free-for-all either. There are terms that limit what you can do with it. What, pray tell, is the difference?
For a company that is stating that copyright trumps the GPL, they seem to breezily ignore the copyright interests of kernel contributors, and here they actually have the nerve to argue the exact opposite of what they are arguing in IBM's case. In the IBM case, they say the GPL is trumped by copyright. Here, they argue that the GPL trumps copyright. I don't think they can have it both ways.
Groklaw readers, as usual, have already taken a look at the copyright notices in the kernel and come up with proof of copyrights belonging to Red Hat. There really is something amazingly effective about legal research using the open source method. Here is one example, found by Dr. Stupid:
2 * Adaptec AAC series RAID controller driver
3 * (c) Copyright 2001 Red Hat Inc.
5 * based on the old aacraid driver that is..
6 * Adaptec aacraid device driver for Linux.
8 * Copyright (c) 2000 Adaptec, Inc. (firstname.lastname@example.org:
And agriffin reports his findings:
"The 2.6.0-test7 kernel has several explicit Red Hat, Inc. copyright statements. For example:
[root@minerva src]# rgrep -R '*.c' 'Copyright' ./linux-2.6.0-test7/ | grep 'Red Hat, Inc.' | wc -l
[root@minerva src]# rgrep -R '*.h' 'Copyright' ./linux-2.6.0-test7/ | grep 'Red Hat, Inc.' | wc -l
"There are 76 c source code files that contain a Red Hat, Inc. copyright assertion and 37 header files. There are, in fact, more Red Hat, Inc. copyrighted files that just use the '(C)' notation."
An anonymous Grokker adds this contribution:
# find linux-2.4.20-8/ -name '*.c' | xargs grep -l 'Copyright' | xargs grep 'Red Hat, Inc.' | wc -l
# find linux-2.4.20-8/ -name '*.h' | xargs grep -l 'Copyright' | xargs grep 'Red Hat, Inc.' | wc -l
"There's a couple duplicates from my commands (places where the copyright message gets printk'ed or MODULE_AUTHOR'ed as well as being included in the file) but you get the gist of it. Of course, SCO's attempt to paint the kernel as 'a process with which plaintiff has had no connection' would be ludicrous even if Red Hat just redistributed Linux without developing it themselves.
"SCO is also expressing the er... interesting... theory that because the Linux kernel is freely redistributable, they can say whatever they want about it because Red Hat doesn't have a 'sufficient economic interest' to defend it. I suppose this is a reasonable mistake on Caldera's part, but they should check out Red Hat's quarterly reports and disabuse themselves of the notion that just because they couldn't make money distributing Linux, nobody else can either."
Next, they attack a Red Hat case that they offered to prove that an implied threat is enough to establish an actual controversy. SCO tries to distinguish the current facts by saying that in that case, letters were sent with the implied threat, and SCO never sent any letters (um, how about 1,500 of them?) so therefore the case doesn't apply, as if the only way to convey an implied threat is by letter. It also tries to hide behind the argument that they never set a deadline for Red Hat or its customers, so that means there was no threat. Puh-lease. As if I could say, "I'm going to kill you," and it carries no legal weight as a threat unless I tell you when, what you must do to avoid it, and when the cutoff date is to get it done.
Next, SCO repeats a case it used in its original Motion to Dismiss, so that means they may be having trouble coming up with any new ones. Not a good sign for SCO. They say that they have never made any express charges of infringement against Red Hat. I'm guessing that they crossed their fingers behind their backs when they wrote that. Anyway, this is all hot air, because the issue under the law isn't was there a threat; the issue is, is there a controversy? Deciding if there is a controversy is a case-by-case matter, and it depends on the totality of the facts, not on certain words or actions.
Red Hat pointed out that the license itself is a threat. Not so, says SCO, and they argue, and yes, now I am starting to laugh, that they found cases where offering a license on a patent doesn't constitute a threat, like their offering their license, which specifically protects buyers from a lawsuit by them, wasn't a threat to sue anybody. And remember that part about it being harder to get a declaratory judgment in a patent case?
Litigators are a breed apart. Not all lawyers have the stomach to be a litigator, and you can see why, reading this. Imagine having to say things like this for a living. Not that any lawyer actually has to. SCO just has a knack.
Next, they use a case, Bonterra America v. Bestmann, 907 F.Supp . 4 (DDC 1995) and say it stands for the proposition that "the fact that a customer curtailed relationship with plaintiff to avoid any possible risk of suit for infringement does not serve to create in plaintiff a reasonable fear that defendant would sue plaintiff for infringement", as if that is all that happened in the current case. Again, this is a rehash, using the same case they put in their Motion to Dismiss. They must be hoping this judge can't think clearly. Or has short term memory issues. It's not good to repeat yourself like this. They spent three paragraphs on this case in their Motion to Dismiss. She will remember that. I even remembered.
Incidentally, when you see ungrammatical sentences like that in a legal document, it often means the lawyer was working too fast and just copied the header info on the case. If you use Lexis, for example, at the top of the page, they'll list headers, in abbreviated sentences, telling you what the case is supposed to prove. It's an aid to researchers. But you're not really supposed to quote the header. You're supposed to actually read the case to see if it fits your facts.
Then, SCO tries to beat back the impact of another Red Hat case, Treemond Co. v. Schering Corp., 122 F.2d 702. By the way, why do they respond to all these cases? They have to or they're sunk. Red Hat found some very strong cases. But significantly, after quoting from Treemond, SCO fails to answer it meaningfully. It's a big hole in their argument. All they say is that their threatening language wasn't as threatening as the language used in Treemond. That's a judgment call, not a strong legal argument, so it's up to the judge to agree or not. They didn't offer any cases to counter it, which is what you normally would want to do. I'm sure they looked for some.
Here is how Red Hat used the Treemond case:
"In addition to the allegations that SCO addresses in its motion, Red Hat alleges a second set of facts that independently establish an actual controversy between Red Hat and SCO: SCO has sought to coerce Red Hat's customers into paying for a license with SCO to use Red Hat LINUX. Further, Red Hat has alleged that while explaining its licensing program at its recent conference call on July 21, 2003, SCO specifically stated that it anticipated such a disruption (Complaint 61.) The Complaint quotes the transcript from the SCO's conference call: 'And so I'm guessing that those end users are going to be looking around to the vendor or vendors involved in supplying [LINUX software] to them whether it's Red Hat or IBM and saying, "What's up, guys? You know what's happening here?" But, you know, that is going to be their beef with their particular vendor.' (Id.)
"The Third Circuit has found that such public statements aimed at the plaintiff's customers establish an actual controversy. Treemond Co . v. Schering Corp., 122 F.2d 702, 705 (3d Cir. 1941) (reversing dismissal of complaint for declaratory judgment of patent invalidity and noninfringement based on finding that defendant's notice in trade journal threatened purchasers with suits if they purchased plaintiff's product). SCO's motion must be denied on this basis as well."
SCO needed to effectively counter this case that supports Red Hat's claim that SCO's public statements and the licensing program are sufficient to establish an actual controversy. In my opinion, SCO failed.
Next, their argument is that even if the judge doesn't agree with them that Red Hat had no reasonable apprehension of litigation justifying their declaratory judgment action, the judge still should dismiss it. Here's why they say she should do that: because the IBM case, they say, will settle "most, if not all" of the issues raised by Red Hat anyway. Most? They seriously think she will say most is enough? The other problem with this argument is that it won't. But they argue that Red Hat, in effect, should wait its turn. First, let the courts decide if there is any infringing code. If the courts say there isn't, then Red Hat could bring the action.
That is an odd argument to advance in a declaratory judgment case. First, by that time, Red Hat's business could be so badly disrupted by SCO's shenanigans that there'd be no way to be made whole. The chief purpose of a declaratory judgment action is to force the other side to court, to get a decision, so a threatening party can't make threats and never actually bring a lawsuit and just destroy your business that way, without you being able to do anything about it. Here, SCO is arguing that the judge should let it do what the Declaratory Judgment Act was written to prevent. Note this from the earlier linked page explaining the Act:
"Outside of the patent field, declaratory judgment actions can be used to prevent tortious acts -- before they occur -- by allowing any interested party to obtain a declaration of the respective rights and legal relations of the disputing party where an actual controversy exists. The object of a declaratory judgment is to avoid the accrual of damages by seeking a court's determination of the rights of parties."
Duh. In effect, they are asking the judge to let Red Hat's damages build and build for a couple of years. And if the IBM case is won by IBM, Red Hat would hardly need to bring a declaratory judgment action then, would it?
Something else strikes my eye. They repeatedly state that the argument is over the 2.4 and 2.5 kernels. But in the teleconference they claimed that their IP is in the 2.6 kernel too, so the IBM case isn't going to settle all the issues, because it isn't even discussing the 2.6 kernel.
And it doesn't settle the specific question Red Hat is asking them to settle: Red Hat is asking the judge to declare that Red Hat is not infringing SCO's copyright. How could the IBM case settle that? Correct, it can't.
SCO's problem is it looks at all issues only from their own standpoint. It's to their benefit to make Red Hat wait, and so they argue it should happen. Then they reach and stretch and twist the law around to try to make it fit. That isn't so rare, but I've never seen such an ill fit as this. Red Hat is alleging that SCO is hurting their reputation and their business. Solving the copyright issue one way or another does not address the trade libel, misleading advertising, and other tort issues it has raised. If Red Hat wins on those issues, it will collect money damages. But if IBM wins, no money damages will go to Red Hat. It has to establish its own torts, so SCO's pretense that they should just let the IBM matter go first ignores the damage Red Hat is claiming. Of course, that is probably because they don't care a bit if they are hurting Red Hat's business, because their purpose is to slow or stop Linux adoption, judging by their behavior. In fact, they have a new program to encourage people to migrate away from Linux. They are saying to the judge: please let us continue to really hurt Linux adoption for another couple of years by making Red Hat wait. It's a breathtaking request, and I can't see why a judge would grant it, and I've tried hard to think of any conceivable reason why she would.
--continued in part two --
Groklaw's New Quote Database Feature
We are happy to announce a new feature of Groklaw, a searchable database of quotations by principals in the SCO story. There is a link to it right under the Home link, on the left.
For example, perhaps you're Red Hat, and you'd like to know everything Darl McBride ever said about your company, you can find it here. Perhaps I should qualify that last statement to say that you can find everything he ever said that we have in our database.
Or maybe you read a quotation in a news story by, say, Laura DiDio, and you wonder what else she has said about this subject over the course of the SCO saga. Now you can readily find out, and I must say, the effect is cumulative.
The database has been donated to us by Groklaw reader and computer programmer LHJ, and we're very grateful to him for his wonderfully useful code. It's an ongoing database, obviously, so if you find bugs or have submissions to add to the database, just email me or leave a comment with your submission and we'll follow through.
The database includes some new copyright information on the SCO/Novell copyright mystery that LHJ collected in his research.
One of the first uses of the database was by LHJ himself, to figure out who is quoted most frequently in the mainstream media on the SCO story, and I'll bet you can guess who won, hands down, but I'll let him tell you about it:
"I have felt for a long time that SCO was executing a very well-planned
media strategy, together with a serious, organized program to reach out
to big investors. As bumbling as their legal strategy seems to us, they
have been very effective at getting their message out and convincing
investors to buy in.
"Like many others, I'm sure, I decided to track online media coverage of
the SCO case by reading all the stories I could and collecting quotes.
I wasn't serious about it for a while, because I kept feeling the story
would climax and die any time now. No doubt tracking of media coverage
is done routinely by company PR departments and political candidates using
staffers and extensive filing and database systems, but when I did finally
get serious, I realized I would have to do the same job in my spare time
as a one-person operation. Fortunately, open source tools like MySQL,
PHP, and Apache made it easy for me to design a system to enter and store
article titles and urls as well as quotes, all with just a few clicks.
The next step for the project would be to become a collaboration with
many eyes sifting through all the data and proposing features.
"The result now is a database of 668 articles and 846 quotes that is
easy to search for all kinds of interesting tidbits. Have SCO
executives made comments mentioning Red Hat? Search for it in a
blink of an eye. Which journalists have been most prolific
in covering the story? Another quick search.
"One interesting search I made was a check of who has been most quoted
about the case. Then I checked how often these people were quoted
week by week over the whole year so far. There are a number of
factors that make the results less than definitive. For example, I
have certainly not made an exhaustive collection of the articles and
quotes out there. It's also possible that I did a more thorough job
collecting quotes by some players over others.
Moreover, the quote count below will put heavy weight on articles and
interviews where someone is quoted multiple times, and this measure
may not be appropriate for the comparison.
"Nevertheless, the list appears with the quoted parties ranked
1-9 then A-F. Below the ranking is a week-by-week list of all quotes
labeled by the digit or letter rank of the quotee. The result is a
crude bar graph that tells you who was talking to the media when.
"I caution you from over-interpreting. It's clear that SCO executives
actively sought exposure and coverage during some periods. On the
other hand Linus Torvalds (#5 at 21 quotes) only spoke out at a few
key moments and kept to his development work the rest of the time.
When Torvalds did choose to speak out, he didn't have trouble being heard.
With that caution, here are the results:"
I hope you enjoy Groklaw's new feature. I've certainly been having fun playing with it. Like everything else about Groklaw, though, it has a serious purpose as well, and we hope you will all help out by sending us quotes with urls and your ideas for new features, so we can make this over time a truly complete work.
SCO Requests a Delay on Answering IBM Motion to Compel
SCO got the delay it wanted to answer IBM's Amended Complaint with Counterclaims, so they are asking Judge Kimball if they could have until the 24th to answer IBM's Motion to Compel. IBM has opposed their request. Also IBM is adding another lawyer to the team. Here's the docket info:
10/17/04 Entered: 10/17/03 Add attorney for IBM David R. Marriott
10/17/03 Motion to extend time by SCO to 10/24/03 for pla to resp to mot/compel
10/17/03 Memorandum in opposition by Intl Bus Mach Inc in opposition to motion to extend time to 10/24/03 for pla to resp to mot/compel
Marriott appears to be a patent infringement guy for Cravath, judging from his involvement in this case. That's assuming this is the same individual, which I don't know to be the case.
Peter Galli of eweek really did ask BayStar and SCO about whether MS is behind the cash transfusion SCO just got. Everyone denies it. I think it's wonderful that Galli actually asked. That's what reporters are supposed to do. But there is one shadow in the picture:
"McGrath also pointed eWeek to a BayStar White Paper on PIPEs published in October 2002, which lists both Microsoft and Vulcan Ventures, Inc., the investment firm of Microsoft co-founder Paul G. Allen, as being among the top ten PIPE investors since 1995.
"That, McGrath said, could explain why people were assuming that Microsoft was an investment partner alongside BayStar, but he was unable to say if Vulcan was such a partner."
More From the Teleconference
This is PR to the nth degree: how to mortgage your company, give up on suing SGI, and admit you can't send out invoices after all and make it sound like a plus.
Here are reports from the teleconference to show you what I mean.
Peter Galli of EWeek reports this interesting bit. SCO says it didn't go looking for money. Several companies, according to McBride, approached them, looking to invest:
"The ability to build up a 'war chest' of cash was too compelling to pass up[~]and so The SCO Group agreed to a $50 million investment deal, announced yesterday, with investment fund BayStar Capital.
"In a media and analyst teleconference Friday, CEO Darl McBride said he is pleased with the structure of the transaction, which is favorable to both the company and its shareholders. 'They are non-voting convertible shares and, once converted, the investors will own 17.5 percent of the company's outstanding shares,' he said.
"SCO Chief Financial Officer Bob Bench said there is no timing on the conversion of the shares, which are immediately convertible and have to be redeemed in minimum batches of 100,000 common shares at a time. There is also mandatory redemption once the stock price reaches 150 percent of the transaction value or 20 consecutive trading days at that level.
"'SCO also has redemption rights and after three years can redeem the stock with a liquidation preference. So we have a lot of freedom to redeem this stock if BayStar has not converted,' Bench said.
"No dividend will be payable on this stock for the first 12 months, but will then kick in at 8 percent and then rise by up by 2 percent for each of the next two years with a 12 percent cap. ...
"McBride also pointed out that SCO did not solicit the investment deals, but was approached by several companies interested in taking an investment stake in the company."
So, several companies approached them. Whoever might they be?
Techweb has more details, saying SCO does intend to pursue "royalties" and will use the cash infusion to follow up, just not with invoices:
"Part of the proceeds would also be used in bolstering its legal battle against IBM and Linux distributor RedHat Inc., and in trying to convince enterprises to pay royalties for the use of Linux, which SCO claims contains its intellectual property. However, SCO President and Chief Executive Darl McBride listed that as the third target for the additional funds.
"While SCO's claims against Linux get all the media attention, only a 'small percentage' of the company is working on collecting royalties. 'But clearly, there are a lot of opportunities for the company as it relates to enforcing our intellectual property rights,' McBride said. 'The two major operating systems in the world -- Unix and Windows -- SCO owns one of those, and having the ownership around the Unix operating system is a gigantic marketplace opportunity for us' . . . .
"SCO is in the process of following up on letters sent to 1,500 enterprises this year, advising them that they may be in violation of SCO's intellectual property rights in their use of Linux. 'Our goals is not to go out and start suing companies,' McBride said. 'But, as we go down that path, if we have certain companies out there that are using Linux and we're unable to come to a resolution or reach an impasse, then we absolutely will reserve the option of (taking) the legal path as the remedy to go resolve that' . . . .
"In its suit against IBM, SCO would not refuse to discuss a negotiated settlement, but that the suit was still very much in a litigation mode. 'With respect with IBM, that one is in the claims, counterclaims response mode, and we expect that in the next week or so we'll have additional things coming out on that,' McBride said."
Still hoping for an IBM buyout, it seems. Deutsche Bank, according to this report, is still telling you to buy SCO, putting out a second report today confirming their Tuesday buy rating, and confirming my suspicion that they likely knew about this deal in advance:
"In a Friday conference call outlining the announcement, an excited SCO president and CEO Darl McBride touted the financing deal as "monumental," and deflected all questions about pending litigation as "irrelevant" to the funding news. According to McBride, the financing and the lawsuits are two separate issues entirely, and with a partner such as BayStar in its corner, SCO is now prepared to tackle whatever comes its way.
"'The momentum in the marketplace continues to shift in our direction,' he said of his company, formerly named Caldera Systems. 'We believe we have secured the capital necessary to fund all aspects of the long-term growth of this company' . . . .
"With this in mind, Deutsche Bank praised SCO on Friday with a strong 'buy' rating, the same rating the investment and securities firm had delivered in a report issued earlier this week. In a new report, Deutsche Bank analysts Brian Skiba and Matthew F. Kelly reiterated the $45 stock price they projected on Tuesday, adding that with $50 million from BayStar in the bank, SCO should have the resources to overcome any litigation.
"'We view this financing as a positive sign the company is increasingly equipped to take on larger challenges ahead,' the authors wrote in the new report. 'The funding puts to rest any concerns about sufficient cash to pursue legal challenges and ongoing investment.'"
And E-Commerce News says there may be acquisitions or new "strategic partnerships" as a result of this deal:
"BayStar Capital, whose other investments include Sirius Satellite Radio, Commerce One and Evolve Software, will provide SCO with the $50 million in cash in exchange for an approximately 17 percent stake in the software company. ...
"SCO also left open the possibility that it could make acquisitions or other moves, saying the cash could pave the way for 'new strategic partnerships.' The investment brings SCO's total cash on hand to about $61 million."
Over in England, a spokesperson for IBM says Linux is "totally unstoppable" and that IBM "shed our proprietary mindset" in 1995.
SCO Replies to Red Hat and Amendment S3 Comparison to Original
I have the SCO reply to Red Hat, which you can read here. We'll be writing more about it shortly, but meanwhile I thought you'd like to see it for yourselves.
Here's something else of interest, a comparison line by line Dr. Stupid did for us (at work on his toy operating system) of the original S3 in September and the recent Amendment to the S3, which SCO just filed. Note the difference in the indemnification section, among other changes. Of course, toy OSs don't always get everything right, but it's still a very useful comparison.
If You Want to Know What's Really Going On, Ask the Lawyers
No matter what spin SCO puts on it, here's what their lawyers think, as shown in SCO 's new 8K, just filed:
"Arrangement with Counsel
"SCO announced that it is in the process of finalizing a modification of the engagement with the law firm representing SCO in the protection of SCO's intellectual property rights. As part of this modification, which is subject to a definitive agreement, the law firm would receive a contingent fee of 20 percent of the proceeds from certain events related to is protection of SCO's intellectual property rights, including certain licensing fees, settlements, judgments, equity financings or a sale of SCO during the pendancy of litigation or through settlement, subject to certain agreed upon credits for amounts received as discounted hourly fees or prior contingency payments. In addition, this modification may result in the payment to such law firm of up to $1,000,000 and the issuance of up to 400,000 shares of SCO's common stock."
Lawyers always make sure they get paid. So, not a ringing endorsement of SCO's future as a company. And notice that they aren't getting paid only if they win the lawsuit, so that shows me they are no longer so sure of a successful outcome or that SCO will still be there at the finish line. The 8K also makes the claim that SCO IP is in the upcoming 2.6 Linux kernel. It says BayStar is one of two investers, but it doesn't say who the second one is [UPDATE: the full 8K with the Purchase Agreement is now up on SEC and it's the Royal Bank of Canada, which invested more than BayStar):
"About the Private Investment
"The SCO Group, Inc. ('SCO') has received a $50,000,000 private investment from two investors, including BayStar Capital II, LP ('BayStar'). The investment is structured as a private placement of non-voting Series A Convertible Preferred Stock. The Series A Convertible Preferred Stock is convertible into SCO common shares at a conversion price of $16.93 per share, which was the average closing bid price for SCO's common stock for the five consecutive trading days prior to the date of closing....
"SCO IP Licensing and Migration Initiative [~] In connection with SCO's intellectual property enforcement effort, SCOsource, SCO has alleged that the Linux 2.4 and the upcoming 2.6 kernel contain SCO intellectual property. In an effort to offer marketplace solutions to these Linux-related intellectual property issues, SCO released a licensing program to offer Linux users a right-to-use binary mode only license, subject to certain limitations. In the coming months, SCO intends to expand the licensing program to include migration options for those end users who may be looking for alternatives to Linux. Over the past several months, SCO has had discussions with several major companies for the purpose of bolstering SCO's intellectual property licensing and migration initiative.
"Legacy Business [~] During SCO's upcoming fiscal year, SCO intends to roll-out major upgrades for its two UNIX operating systems."
So, that's the public plan, to forget the licensing and try to get the world to stop using Linux. According to this report, they were so cash-strapped that had BayStar not stepped in, they would have been unable to go the distance to the trial with IBM. Even with the infusion, it seems they can't afford to sue SGI:
"SCO Group has suspended its demands for licensing payments from Linux users after receiving a $50 million infusion of cash from BayStar Capital.
"There are also indications that the company will concentrate solely on its original $3 billion legal action against IBM, which it claims infringed its Unix operating system licence by contributing technology that SCO claims was derived [~] however tenuously [~] from SCO's original System V Unix.
"This follows a concomitant decision to put its action against graphics workstation vendor SGI on hold. It accuses SGI of similar intellectual property infringements."
Tenuously is a good word. So, everything appears to indicate SCO's days may be numbered.
There is one paragraph in the Purchase Agreement between SCO, RBC, and BayStar that I've never seen in a contract before. That doesn't mean it's never been in any contracts before, just that it's new in my experience. It stands out because I think it'd be fair to call it the "Shut Up Clause". SCO must not issue any press releases or public statements about this deal without BayStar's prior review. It seems they know about McBride's penchant for issuing press releases and statements to the media, and they want at least prior review:
"The Company shall issue a press release (the 'Press Release') describing in reasonable detail the transactions contemplated hereby and such other matters as had previously been discussed by the Purchasers and the Company, as soon as practicable on or after the date hereof, but in no event later than the commencement of the first trading day following the date hereof. The Press Release shall be subject to prior review and comment from BayStar Capital II, LP ('BayStar'). Within two days after the Closing Date, the Company shall file a Form 8-K with the SEC concerning this Agreement and the transactions contemplated hereby, which Form 8-K shall attach this Agreement and its Exhibits as exhibits to such Form 8-K (the '8-K Filing'). From and after the Press Release, the Company hereby acknowledges that no Purchaser shall be in possession of any material nonpublic information received from the Company, any of its Subsidiaries or any of its respective officers, directors, employees or agents, that is not disclosed in the Press Release. The Company shall not, and shall cause each of its Subsidiaries and its and each of their respective officers, directors, employees and agents not to, provide any Purchaser with any material nonpublic information regarding the Company or any of its Subsidiaries from and after the Press Release without the express written consent of such Purchaser; provided, however, that a Purchaser that exercises its rights under Section 4(n) hereof shall be deemed to have given such express written consent. No Purchaser shall have any liability to the Company, its Subsidiaries or any of its or their respective officers, directors, employees, shareholders or agents for any such disclosure. Subject to the foregoing, neither the Company nor any Purchaser shall issue any press releases or any other public statements with respect to the transactions contemplated hereby; provided, however, that the Company shall be entitled, without the prior approval of any Purchaser, to make any press release or other public disclosure with respect to such transactions as is required by applicable law and regulations (provided that any such press release or other public disclosure shall be subject to prior review and comment by BayStar)."
The funny thing is, RBC makes no similar demand. So, it indicates to me that there is some aspect to this deal BayStar would rather SCO didn't talk about in public. Our assignment, should we care to accept it, is to find out what that aspect is.
Meanwhile, Stowell says that while they aren't going to mail out invoices, at least not now, the license is still available. They'll be "approaching" companies, just not using the US mail:
"He added the caveat that this was not necessarily a permanent decision. Furthermore, the licence will still be available. 'We're still approaching companies [to buy the licence], we're just not invoicing them.'"
Of course, the beauty part of that is, no one will ever be able to prove different.
UPDATE: I have heard from a tax attorney whose opinion I value, and he says, in the nicest way possible, that I'm all wet on this Shut Up Clause. He says they are fairly standard. So here's the scoop from him:
"With respect to the 'Shut up clause', it is fairly standard in the deals that I've worked on. Whoever is the lead manager for the investors gets veto or vetting power over any communications with the press with respect to the deal, just to prevent any
surprises. The lead gets the power just so that there is only one
representative of the investor group as the point of contact, otherwise
decisions would never get done."
Groklaw's Open Letter Linked to SCO's Backing Off Invoicing
Computer Business Review indicates our Open Letter to SCO was a factor in SCO's decision to back down from its invoice scheme. I expect the research support document, Digging for Truth, sent with it, had some weight, too.
That seemed worth telling you about in its own article, with its own headline. We all worked so hard on that project, and I can't help but be thrilled at this report. Here's what they said:
"SCO Group Inc is backing-down from threats to invoice organizations running Linux while extending SGI's compliance deadline.
"A company spokesperson said yesterday SCO's plan to invoice organizations, on the basis that Linux illegally contains SCO code, had changed following what he claimed was success of its UnixWare licensing program. . . .
Members of the open source community warned SCO last month in an open letter they would initiate civil action under anti-fraud and consumer protection statutes.
"Reports, meanwhile, said SCO called off its invoicing program in case it lost its $3bn legal action with IBM, in which case it could be found guilty of mail fraud. Mail fraud in the US is a relatively serious offense."
The article also includes the information that the deadline for SGI is extended, as discussions continue. But who can focus on that yet? Not me, for sure. Congratulations, everyone. It was a plum pleasing pleasure working with you.
SCO Teleconference to Explain Itself Friday
SCO has announced the details of the Friday teleconference. They say they will explain the $50 million from BayStar and tell us what they will do with it and say "SCO will provide further details on the investment led by BayStar Capital Management." Hmm. "Led by" means others? I'm sure every word will be true blue and well worth the time invested. Only "press and industry analysts" are invited. The announcement calls them "the owner and licensor of the core UNIX operating system source code". It will be Friday at high noon, EDT, and there will be an audio replay for those "interested media and analysts" if they will provide SCO with their email.
BayStar Tells How to Invest Discreetly and Confidentially
Here's an interesting document. It's a white paper prepared by BayStar on PIPE transactions. Hint: go to Google and type in "baystar capital microsoft" and click on the third pdf link down on the page. Look at page three of the document. And there it is. Or just click here.
Here is how BayStar describes a PIPE transaction:
"A PIPE is a private investment in public equity. A form of private placement, PIPE transactions enable companies to raise capital in smaller amounts and with less dilution, lower expenses and greater flexability than a traditional secondary offering. PIPE transactions provide greater control and discretion in raising capital by allowing companies to issue securities without revealing their deliberations to the market until the transaction is completed. PIPE securities, which can be equity or debt or a combination of both, are typically sold at a discount to the current market price to a small group of accredited investors and/or institutional buyers seeking to acquire positions in desirable companies. . . . PIPE transactions -- particularly for those companies looking to access the capital markets quickly and discreetly without the increased visibility of a secondary offering -- can be an equally attractive or even superior vehicle for raising capital. The ability to conduct transactions confidentially, the reduced fees and management time, and the enhanced flexability of the process, are all important considerations that highlight the increasing value of PIPEs as an effective capital raising technique."
And who is listed in the top 10 list of investors in PIPEs since 1995? Why, Microsoft, silly. Who'd a thunk it? Disclaimer: this doesn't prove they made BayStar do this or gave BayStar the money to do it, or are the man behind the curtain or anything else necessarily. But it does mean we hope you journalists will read all about BayStar's investment philosophy in this document and ask SCO exactly where the $50 million is coming from, whether from BayStar alone or whether they are merely the conduit and if the latter, for whom?
UPDATE: I want to stress even more clearly than I thought I already had that this document does not demonstrate any MS-BayStar connection. MS invests in PIPEs and BayStar does them, but it doesn't necessarily follow that MS invested in BayStar. It's important to be fair. Yes, to MS too. And until we actually find a provable connection, and we have not so far, I don't want to contribute to any talk that such a connection has been proven. I'm very clear that no such connection has been proven, but I'm spelling it out very plainly, because I've gotten a lot of email from people sending me this document and saying it proves a connection. It does not, in my opinion, do that. It does raise the question, but it doesn't provide the answer on its own.
SCO Gets $50 Million to Do More Bad Things With
BayStar Capital has invested in SCO to the tune of $50 million. They call it a private investment transaction. I call it a "raise the value of your stock by nonsensical research reports and other tricks and then profit from the increased value of your stock", but I'm no stock guru, so I could be imagining things.
Maybe it's the other way around, namely that DB knew this was in the works, and so they put out a report to try to look like they are geniuses. All I know for sure is it's a mighty funny coincidence. On the other hand, coincidences do sometimes happen.
This could explain a lot, don't you think, about recent events with the stock price, which apparently BayStar Capital was too stupid to see through? I presume this means there is now money to get from SCO when they lose in court, so Canopy guys can stop worrying about their own pile. Or at least that may be the hope. BayStar put their money on the wrong pony. But if they choose to throw money away, it's fine with me.
So, let me get this straight: the 75th fastest growing company in the US according to Deloitte's Fast 500 list needed to raise some money to keep going. Hmm. Makes you wonder about the economy -- or about Deloitte's Fast 500 evaluation, eh?
Here is the press release (note original press release has been taken down, brackets around the numbers removed and the new press release put up at the new location. The old one was here and it read: "The investment in SCO was structured as a private placement of non-voting Series A Convertible Preferred Shares, convertible into common equity at a fixed conversion price of [$16.93] per share, which was the average closing bid price for the Company's common stock for the five previous trading days prior to the date of closing. Upon conversion, BayStar will own an aggregate of approximately [2,953,000] shares of SCO common stock representing [17.5%] of the company's outstanding shares." ), and after we read it, it's time to research BayStar, natch, starting here and here :
"The SCO Group Closes $50 Million Equity Financing
Thursday October 16, 4:31 pm ET
$50 Million Private Investment Transaction Led by BayStar Capital Provides SCO With Funding for Future Software Development, SCOx Web Services Partnerships And Acquisitions, Future Licensing Opportunities and the Protection of the Company's Intellectual Property Assets
LINDON, Utah, Oct. 16 /PRNewswire-FirstCall/ -- The SCO® Group (SCO) (Nasdaq: SCOX - News), the owner of the UNIX operating system, today announced it has received a $50 million private investment led by BayStar Capital, an investment fund that is a leader in providing negotiated private equity placements in publicly traded companies. The investment in SCO was structured as a private placement of non-voting Series A Convertible Preferred Shares, convertible into common equity at a fixed conversion price of [$16.93] per share, which was the average closing bid price for the Company's common stock for the five previous trading days prior to the date of closing. Upon conversion, BayStar will own an aggregate of approximately [2,953,000] shares of SCO common stock representing [17.5%] of the company's outstanding shares.
The net proceeds from the private placement, combined with the Company's cash balance reported for its third quarter ended July 31, 2003, will provide the Company with a cash position of approximately [$61.0] million. The increase in cash will significantly enhance the overall financial strength of SCO while providing substantial additional funding for business objectives including future UNIX and SCOx Web Services software development, new strategic partnerships, and protection of the Company's UNIX intellectual property and related programs.
"The momentum in the marketplace continues to shift in SCO's direction," said Darl McBride, president and CEO, The SCO Group. "Over recent months, we have made significant strides forward in our on-going effort to protect and enforce the Company's intellectual property rights through SCOsource. During the same period, we have been steadily strengthening our core operating business, and in the coming weeks, we look forward to providing the industry and Wall Street with additional details on our plans and initiatives. Now, with a $50 million investment from BayStar, we believe we have secured the capital necessary to fund all aspects of the long term growth of this Company."
"BayStar Capital looks to invest in growth-oriented firms with strong management, substantial market opportunity and solid, comprehensive business plans, and we believe that all of those fundamentals are in place for SCO to succeed," said Lawrence Goldfarb, General Partner, BayStar Capital. "SCO owns the most predominant UNIX software assets in the I.T. industry, has a 20 year history of providing trusted software solutions to end users around the globe, and an aggressive and seasoned management team focused on generating profitable growth."
SCO will hold a teleconference to address this investment on Friday, October 17 at 12:00 p.m. Eastern time. Participants should dial in 10 minutes prior to the start of the call and dial toll-free 1-800-811-8824 and use the confirmation code 690025. International callers should use the toll number +1-913-981-4903.
The securities sold in this private placement have not been registered under the Securities Act of 1933 and may not be offered or sold in the United State in the absence of an effective registration statement or exemption from registration requirements. The Company has agreed to file a resale registration statement on Form S-3 within 30 days after the closing of the transaction for the purposes of registering the shares of common stock underlying the shares of Series A preferred stock acquired by BayStar.
Here's what BayStar says about itself:
"BayStar Capital is a private equity crossover fund that makes direct investments in late stage privately held companies and small to medium capitalization publicly traded companies across all sectors. The firm is a leader in arranging Private Investment in Public Equity (PIPE) transactions that provide capital to companies seeking to reduce time to market, less stock dilution and lower market risk."
New feature: I've put up an IBM Timeline as a permanent page. It has everything that has happened so far and a list of future dates to watch for. There is a new link on the left side of the page "IBM Timeline". You asked for it. You got it. I'll do one on Red Hat as I can. Until the motion to dismiss is ruled on, and that should be in about a month or so, there is no timeline, except for the motions themselves.
Forbes' Dan Lyons has felt compelled to respond to the reaction he caused by his article on "Linux' Hit Men", which you can read here and I'd say it's as close to an apology as we're going to get. I'd say the letters were effective. Congratulations, everyone. Looks like his boss got our message. He asks a question which I'd like to answer. He says enforcement actions regarding the GPL will cause corporations to stay away from GPL code, and he asks if this is good for Linux. The answer is yes. We would like companies like SCO and other would-be thieves to stay away from GPL code and give up their dreams of coopting our code and "monetizing" it for themselves. We believe this would be very good for Linux. What Mr. Lyons does not comprehend, or SCO either, for that matter, is Linux doesn't need corporations. Corporations need Linux. That's the part Mr. Skiba of DB forgot to put in his equation.
I have a question for Mr. Lyons in return: Does he own any SCO stock? What are the guidelines for journalists at Forbes on such matters? Shouldn't journalists and analysts have to disclose any interest they might personally have in a story and if they have a strong interest recuse themselves, the way judges do?
No Invoices, Deutsche Bank Comes Through Again, and SCO is "Honored"
It seems SCO is so pleased with response to its SCOsource licensing, it doesn't need to send out any invoices. Oh, and you have until the 31st before the price goes up on those invoices they aren't sending and you weren't going to pay anyway:
"The SCO Group has backed off a plan to send invoices to corporate users in order to prod them into buying licenses for their use of Linux, an operating system the company argues violates its Unix intellectual property.
"In addition, the Lindon, Utah-based company has extended until Oct. 31 a deadline after which it planned to double prices for the Linux license. Previously, the company had said the prices would increase Wednesday.
"'The executives have said we haven't had to do it yet,' SCO spokesman Blake Stowell said of the invoice plan. 'They're happy with progress in the licensing program.'"
SCO's satisfaction with the reaction to their licensing scheme will puzzle readers of their most recently filed Amendment No. 2 to Form S-3, which lists nobody new as having signed up. In other news, their stock was airborne again, thanks to some buddies at Deutsche Bank, and just in the nick of time, too, since those Vultus shares were getting ready to be sold and normally, as it has been explained to me by SCO in the S-3, that sort of an event might tend to dilute value:
". . . SCO's stock surged $4.97, or 32 percent, to close at $20.50 Wednesday, after Deutsche Bank analysts Brian Skiba and Matthew Kelly initiated coverage of the company with a 'buy' rating and a $45 price tag."
Why $45? Nobody but DB can figure that part out, or at least nobody I know. Why Deutsche Bank, you may ask? For the moment, I'll just list a few links you can go to and see how Canopy Group companies and Deutsche Bank have been holding hands for some time. Make of it what you will. You might want to start here, where in August DB was fined by the SEC for improprieties in the HP-Compaq merger, failing to disclose a conflict of interest. Then check out the history of Deutsche and Canopy companies here and here and here and here and here and here and here.
The only other analyst tracking SCO said that DB has "made a mistake":
"The only other analyst who covers SCO is Dion Cornett of Decatur Jones Equity Partners, according to Thomson First Call. He has an underperform rating on the stock.
"Investing in SCO is like buying a 'lottery ticket,' Cornett said Wednesday. 'I think at the end of the day, the lottery ticket is not a winner,' he added. 'They will not prevail in their lawsuit against IBM.' ... Cornett believes that IBM fights to the death when it believes it's right, as it clearly does here, and therefore a settlement is unlikely."
Hmm. Linux. Lottery ticket. That reminds me of something.... Even if SCO could convince a jury it was right, IBM would win on appeal, this analyst says:
"'I think it's a stretch to think that an appellate court is going to overturn 100 years of copyright law,' he said. Cornett has a $6 price target on SCO, based on a discounted cash flow analysis."
Oh, that. The old-fashioned kind of analysis. Discounted cash flow, indeed. Of course, whoever made out like a bandit today doesn't care what Mr. Cornett thinks. The folks selling today did just fine, thanks. And as for making a mistake, well, maybe they're just playing a different game.
And as for Skiba's "analysis" that SCO could hit the jackpot, it's based in part, according to the document, on his belief that SCO, if it wins, will be able to sue millions of Linux users. Dream on. If, in some upside-down crazed legal world SCO won, nobody would use Linux any more rather than pay a dime to SCO, I'm certain. We'd all switch to BSD or the HURD or whatever new stuff those wonderful programmers come up with like magic. And SCO would be left with a legacy version of software nobody would ever touch or fix for them to time indefinite, even forever. Then they'd have two old legacy operating systems nobody wants. Those who bought today under Skiba's analysis may end up just as mad as the class action litigants in this securities case, where, oddly enough, a report by a Brian Skiba is mentioned in the complaint. His wisdom about SCO can be tasted in this excerpt:
"The IBM lawsuit and the potential for Linux licensing deals offer plenty to be excited about, while failure would render the shares worthless, in our view."
And in this report from thestreet.com, he says to watch your step:
"'This is not for widows and orphans,' Skiba said of an investment in SCO. 'Hedge funds would be a more appropriate market to buy this stock.'
"Hedge funds, however, may be on the other side. Currently, almost 12% of the stock's float is short, and the days to cover short interest went up to 5.13 on Sept. 15 from 4.51 on Aug. 15."
Widows and orphans better stand clear, all right. But did they? Reuters and others reported a 38% jump, but that turned out, from all I've seen, not to have been true. But, as you know, I'm no wizard in the stock market, so I could have missed something. The highest figure I could find was 33%, but hey, this is nostalgia day, harking back to the good old days, when there was plenty of money to be made off of fools who weren't smart enough to protect their retirement years by sufficient cynicism about those Wall Street swashbucklers.
Speaking of cynicism, this tidbit:
"Skiba doesn't own shares of SCO. Deutsche Bank may seek to provide investment banking services to the company."
And to cap off our cynical mystery tour, this gem, from a SCO press release today:
" The SCO® Group (SCO) (Nasdaq: SCOX -News ), a leading provider of business software solutions, today announced its ranking -- number 75 -- on the 2003 Deloitte Technology Fast 500, a ranking of the 500 fastest growing technology companies in North America. The Deloitte Technology Fast 500 rankings are based on average percentage revenue growth over a five-year period, from 1998-2002. SCO revenues grew 5,978 percent during this period.
"SCO president and CEO, Darl McBride, credits the company's increased revenue growth to a renewed focus on SCO's core UNIX business, strategic Web Service initiatives and continued commitment toward protecting its valuable intellectual property. 'As a company, we've worked hard to ensure that our company is in a cash-positive position,' said Darl McBride, president and CEO, The SCO Group. 'It's an honor to receive this type of recognition from Deloitte.'
"'Attracting enough customers to maintain four digit growth over five years makes a strong statement about the quality of a company's product and its leadership,' said Mark Evans, national managing partner of Deloitte's Technology, Media & Telecommunications Group. 'We commend SCO for making the Deloitte Technology Fast 500 with a phenomenal 5,978 percent growth rate over five years.'
"To qualify for the Deloitte Technology Fast 500, a company must be a public or private entity that is headquartered in North America. The company must have a sole focus on technology-defined as any company that owns proprietary technology that contributes to a significant portion of the company's recorded operating revenues."
You might like to compare that press release with this amendment to their September S-3, which isn't up on the SEC board yet, but is on Edgar:
"If the market for UNIX continues to contract, it may adversely affect our business. Our revenue from the sale of UNIX-based products has declined over the last eight quarters. This decrease in revenue has been attributable to the worldwide economic slowdown, lower information technology spending, and increased competitive pressures from alternative operating systems. If the demand for UNIX-based products continues to decline, and we are unable to develop new products and services that successfully address a market demand, our business will be adversely affected."
Decline for the past 8 quarters and you make Deloitte's Fast 500? I wonder which kind of "fast" they mean?
So there you have it folks, a very fast day in SCOville. And, no, this isn't investment advice. I'm just putting my research results in front of you, so you can understand the day's events and can follow along.
Let me guess. Could you use an antidote? Try this article about Linus (some gratuitous snottiness and ignorance on the reporter's part about rms, which is mirrored in the title of the article, but otherwise enjoyable, and Linus doesn't support the reporter's attempt to drag him into it) and while you're at Wired anyway, how about one on the open source method being used in many other areas besides software. Kind of like Groklaw, if you think about it.
And They Say You Can't Change the World
The Register is reporting that Israel has just acknowledged that Microsoft Israel is a monopoly, and that legal ruling means no upgrades of MS products through all of next year. They are looking into OpenOffice instead:
"The Israeli Ministry of Commerce has suspended all governmental contracts with Microsoft, and indicated that the ban will last throughout 2004. The de facto suspension means no upgrades for the duration, at a time when Microsoft is looking to roll out its Office 2003 upgrade; and the Ministry is said to be examining OpenOffice as an alternative.
"It's a consequence of a much-anticipated legal verdict: Israeli Antitrust Authority director general Dror Strum has finally acknowledged that Microsoft is a monopoly. Register readers play no small part in this remarkable story. . . . Several groups have lobbied for Microsoft to be subjected to Israel's strict antitrust legislation. But the issue was forced by the Online Freedom Foundation lobby group, whose head Oded Lavi has fought the legal battle that brings to light a hitherto unpublished agreement between Microsoft and Israel's former Antitrust Authority director David Tadmor, signed in 1999.
"The agreement specified that any restrictions imposed as a consequence of the US Department of Justice's antitrust action against Microsoft would be applied in Israel. They weren't enforced, until now. "
It all began as a dispute over Microsoft's refusal to provide Hebrew support in its Macintosh Internet Explorer browser or Office suite, thus effectively freezing Apple Computer out of the Israeli market. Register readers began writing effective letters, some examples of which are included in the story, and the rest, as they say, is history.
And people say you can't change the world.
Groklaw's Believe It Or Not
Somebody submit this to Ripley's Believe it or Not right away: Forbes has come out with an article attacking intellectual property rights!
Mr. Daniel Lyons of Forbes Magazine notoriety, has attacked the Free Software Foundation for enforcing its copyrights and the GPL license.
Why it's positively unAmerican!
Yup. It's true, Mr. Lyons. If you choose to use GPL code in your business, you must do so in accord with the license terms. If you don't like the terms, you should not use the code.
Nobody will force you to use our code. You are free to write your own software instead.
If you steal the code, because it's free and so handy, and/or violate the license terms in other ways, the copyright owners will contact you and try to work things out, giving you the choice of either ceasing to use the code and replacing it with code you develop yourself, or releasing your code under the same terms as the code you stole. It's your choice.
But let's be clear: if you steal someone else's copyrighted code, you are guilty of copyright infringement.
Should you fail to comply, you will be sued for copyright violation. The reason for this is that copyright law is the law of the land and you must respect it. The GPL is based on copyright law, and we should all respect the law and the rights of others, I'm sure you would agree. Even corporations must comply with the law, or there are consequences. Pleading that you can make tons more money by stealing other peoples' hard work isn't a legal defense, even if it makes moral good sense to Forbes writers.
"But...sputter...but...they won't just take my money instead and let me keep using the code I stole and let me continue violating the license if I grease their palm with silver?
Correct. They will not.
You see, that isn't how copyright infringement is solved. The infringement itself must cease.
And to your amazement and evident dismay, the GPL does work. Courts will uphold it and companies will have to comply with it one way or another, if they choose to use GPL code rather than spending the money and the time to develop their own code. The way to avoid the terms of the GPL is not to steal it and hide it; it's to write your own code. We realize that no company, not even Microsoft, can afford to hire the numbers of programmers who write GPL code today, so their code won't be as good as GPL code and it's not free either. It's a trade off and each company will have to make its own decision.
Companies that violate the GPL do get caught and have to pay for their misdeeds. You may feel outrage that corporations aren't the only entities that have enforceable copyrights, but that is the way it is. You will have to get used to it.
It's the American way.
SCO Tries to Use Lineo Case Against Open Source
I knew it. I knew it. I knew it. What a nose I have for these guys.
Already, SCO's Blake Stowell is pointing to the Lineo case as an example "proving" that open source is a problem.
As soon as the story broke, my first thought was to wonder if maybe Canopy went public with it so the case could be used by SCO as an example of problems with the GPL. Actually, that was my first publishable thought. Whether that happened and it's all coordinated or SCO is just coincidentally taking advantage of the case, I'll leave up to you to decide, but take advantage of it they certainly are. Here is the SCO take:
"SCO spokesman Blake Stowell pointed to the case as evidence that open-source software such as Linux needs to be handled and tracked more carefully. 'Fundamentally, there needs to be some mechanism in place to better police open source,' he said."
Evidently the only such case they could find was one where a fellow Canopy Group company was involved as the perp.
Let me get this straight. A Canopy Group company infringes an open source company's code, puts that code in their own product inappropriately, gets caught, and another Canopy Group company (that has been claiming for months that open source code isn't properly policed) says the case proves there is a problem with policing open source? Puh-lease.
They seem to have it backwards. Maybe they couldn't find any cases where proprietary infringing code was grabbed and ended up in open source code, so in their desperation, they settled for the opposite -- a case where one of Canopy's own companies, a combo proprietary-open source company, infringed open source code. And this proves open source needs to be policed? Maybe from them. It looks more like there is a problem with the Canopy Group. So, I agree. Call the police. They should definitely look into this.
Oh, that's not what they meant?
Some more details are emerging:
"MontaVista Software accused its competitor Lineo in April 2002 of selling software that originally came from MontaVista that had its copyright notices removed, said Jason Wachal, MontaVista's lead lawyer. MontaVista filed suit in federal district court in Salt Lake City. 'It appeared to us that Lineo, which was still in its original incarnation, was distributing computer software to its customers or potential customers that had code in it that appeared to be written by MontaVista but that had all of the MontaVista copyright information stripped out of it,' Wacha said. . . . The suit was settled in the third quarter of 2003, Wacha said. Terms of the settlement are sealed."
So this case didn't settle yesterday, or in October at all. According to Bloomberg News, it settled last month. But it surfaces now when Yarro, despite the court records being sealed -- meaning MontaVista can't say anything about the settlement -- nevertheless publicly tells the world all about it. He wasn't a party to this lawsuit, so why did the NY Times call and ask him about it? And more tellingly, why did he answer? And then the next day or so, SCO starts using it in its own twisted way. The whole thing does not pass the sniff test.
Normally, when court records are sealed, it's to keep the details a secret. Usually the defendant is the party wanting it kept sealed, so they don't have to tell the world they were guilty, even if they were. Yet Yarro comes out and gratuitously says that his once-Canopy Group company Lineo, the defendant, was guilty. Why did he not just say the court records are sealed and honor that? Lineo isn't a Canopy Group company now, so why would he be an appropriate spokesperson for this case now? That's what drew my suspicions in the first place. That and the fact that Google can't find any company called Hexamark Technologies, the alleged name of the alleged company in India that Yarro said Lineo outsourced the work to that he says caused the problem. Say, SCO's stock hasn't been going down again, has it?
The article goes on to quote an IP lawyer who opines that it was MontaVista that offered to settle, despite no such facts being in the public record (so how does he know, and if he doesn't know, how does he dare to say it?) in order, the lawyer speculates, to avoid having the GPL litigated in a court trial. Um...like MontaVista brought a lawsuit all about the GPL in the first place because it didn't realize it would end up in court. Maybe the lawyer was misquoted. It's possible. Then again, maybe he wasn't. If he wasn't, shame on him. And then in spite of himself, the lawyer ends up saying the GPL appears to be getting stronger "with each month and quarter that passes". No, son. It was always strong. It's just you guys who are getting weaker, as you begin to grasp what the GPL is about and what it was designed to do -- protect us from the SCOs of this world, which it is, despite SCO, Canopy, or the best efforts of all their ethically challenged FUD helpers.
A note about the SCO timeline
On February 26, 2003, Darl McBride and Robert Bench held SCO's First Quarter Financial Results teleconference, an mp3 of which you can listen to here.
There are a number of points covered regarding the company's financials, and a lot of the call was spent on the SCOsource initiative. You financial wizards may find that part of the call more interesting than I did, but what struck me after I thought about it quite a long time was something that McBride said in the question-and-answer session. He was asked what his financial arrangement was with David Boies:
"With respect to the law firm, we're not speaking publicly about our arrangement there, but I can say we have business, uh, alignment...we have business interest alignment with respect to how we're going at it, so the law firm has an interest in what we're going out and doing, and so we think that's the right way to approach it."
Now, SCOsource was under way, but SCO has claimed that the March stock plan was set up prior to any litigation plans, and this call was at the end of February, so according to their timeline, no litigation was yet in the works. But if that were the case, what would the "business interest alignment" be? If they had already planned on suing somebody, the answer might be that Boies had been hired on a contingency basis to handle the lawsuit. But if there was no contemplated lawsuit, what is the business interest alignment? It makes you wonder what the contingency was in the contingency arrangement, when Boies was first hired in January. A percentage of SCOsource monies brought in? Or was a lawsuit expected from the start?
Obviously, only they can answer. But as to whether they already had in mind to sue, see what conclusion you reach from these segments of McBride's remarks:
"Now with respect to the majority of the customers as we've gone down the SCOsource path, you know, the first blush read on this that many of us have is, Gosh, this is a scary place to go. What are people going to say, when you step up and say, Hey, wait a minute, that's my intellectual property, you need to pay me some money? And we've been pleasantly surprised that the majority of the people we talk to are actually very reasonable about it. Most of the discussions we have are very friendly. And in some, many cases we have people that have seen the press releases, the stories in the press and they've called us up and said, Hey, I'm concerned that I might be infringing here, can I sign up for a program? And so what we've done is we've taken a very friendly approach to going out and enforcing our intellectual property in the marketplace."
No one asked him if that was truthful, of course, but was it? Another question arose on SCOsource and again he was asked if they were going to take a non-adversarial approach, and McBride said this:
"Again, the response there is the vast majority of the cases it's actually been a very cooperative, very friendly set of discussions, and we're in various levels of discussions with many, many companies right now. There've really been an isolated one or two cases where people have just told us to take a hike and in those cases, you know, we'll take a different approach. We didn't bring on one of the world's best law firms to have people tell us to take a hike, and then we take a hike. So, you know, in those cases, we'll look at them differently. But again, for the 95% plus case of the people and the companies we're talking to, we're getting very positive responses."
I'd listened to this tape before, but it wasn't until recently that it dawned on me that there is an unexplained "business interest alignment" if you consider SCO's official story of its timeline, and that the timeline itself regarding when a lawsuit was being thought of is impacted by McBride's reference to being willing to go after any recalcitrants who might not pay up, and that in February at least one or two had already told SCO "to take a hike."
As Flaubert said, "God is in the details."
Yarro Admits Lineo Infringed GPL Code --DiDio: "All Roads Lead to Canopy"
John Markoff at the NYTimes is reporting that Lineo, a former Canopy Group company, sued by Monte Vista for copyright infringement, has settled the case, and that Ralph Yarro admits Lineo infringed Monte Vista's copyrights. And here is the kicker: the code was GPL code.
While the court docs are sealed, the charge by Monte Vista (could there be two companies named Monte Vista?) was that their GPL code was taken by Lineo and used after they stripped off its copyright notices.
Gulp. Think IBM might be interested in this? SGI? No wonder Red Hat has asked to see every bit of source code SCO has ever distributed.
I wonder if those SCO/Canopy dudes thought it'd be safe to say Linus accepts stolen code because they do it themselves, and GPL code at that. Guilty folks generally, in my experience, believe the whole world does what they do. Liars, for example, think everyone else lies too.
Yarro blames it on outsourcing. Urm. Doesn't anybody in his companies ever actually look at their own code? According to this SEC filing, Lineo was a combined proprietary/Linux operation. I thought proprietary companies had this superior fail-safe system to make sure no stolen code ever got in, no? I wonder if Lineo offered its customers indemnification? -- All right. Heh heh. I couldn't help myself.
It seems Lineo may have pleaded innocent infringement. I didn't know Canopy types acknowledged such a thing existed. Somebody call SGI. Here's a bit of the Times article:
"Lineo was sued last year by Monte Vista, a maker of software for specialized computers used in consumer and industrial applications that is based in Sunnyvale, Calif. The Monte Vista executives said they had been notified that software their programmers had written and licensed under the GNU General Public License - the license that governs companies that distribute Linux software - had appeared, with copyrights removed, in Lineo's software. The license, which allows for the free distribution of software, still requires that the copyright notices be retained. . . .
"Canopy is now SCO's largest shareholder, with two seats on the company's board, and has played an important role, analysts say, in shaping SCO's legal strategy. 'All roads lead to Canopy,' said Laura Didio, a computer industry analyst at the Yankee Group. 'They've been pretty clever in the way they've played this.'"
Clever how? Can't this gal get one thing right? They've just been caught with their hand in the GPL cookie jar, and she says they are clever? I hope this one time she is right, in the sense that I hope all roads lead to Canopy, if you catch my drift. Yarro is quoted extensively in the article, and he doesn't sound so happy with the Lineo story or with SCO:
"'This story may speak more to the dangers and cautions of working with these outsourced companies,' said Ralph Yarro, chief executive of the Canopy Group. He added that when the incident took place Canopy was no longer the majority shareholder of Lineo. . . .
"He acknowledged that the Lineo suit did in certain ways parallel issues in the dispute between SCO and I.B.M. 'SCO picked a big fight and it flowed over to the Linux environment and we found ourselves in an awkward position,' he said. . . . Mr. Yarro said: 'I know I've been painted in a rough light. I hope that our companies are our legacy and not our lawsuits.'"
If this doesn't beat all, as my dear Grandma used to say. Think it sounds like SCO execs might be asked to walk the plank soon? And that Canopy would like to distance itself from the lawsuit? If nothing else, we understand now why Utah has been a whole lot quieter than normal.
Leaping lizards, guys, this feels huge. And by the way, do you suppose they just found out that the GPL is valid and stands up in a court of law?