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Novell Challenges SCO Over Unix, Linux

While SCO Group Wednesday told the world about its first net income in company history, Novell came out swinging, challenging SCO's ownership of Unix System V copyrights and patents, as well as potential intellectual property rights claims over Linux.

In a letter to SCO President and CEO Darl McBride, Jack L. Messman, chairman, president and CEO of Novell, said that when Novell sold Unix System V to SCO in 1995, the asset purchase agreement did not transfer the copyrights and patents.

"Importantly, and contrary to SCO's assertions, SCO is not the owner of the Unix copyrights. Not only would a quick check of U.S. Copyright Office records reveal this fact, but a review of the asset transfer agreement between Novell and SCO confirms it. To Novell's knowledge, the 1995 agreement governing SCO's purchase of Unix from Novell does not convey to SCO the associated copyrights," Messman said in the letter. "We believe it unlikely that SCO can demonstrate that it has any ownership interest whatsoever in those copyrights. Apparently, you share this view, since over the last few months you have repeatedly asked Novell to transfer the copyrights to SCO, requests that Novell has rejected. Finally, we find it telling that SCO failed to assert a claim for copyright or patent infringement against IBM."

But, while noting that SCO is not currently fighting over copyright claims, McBride said that in the opinion of SCO's legal counsel, SCO does in fact hold the right to the Unix copyright. McBride said the transfer agreement was unclear on the issue, but after the question arose SCO spoke with the four people involved in the transfer: the CEOs of both companies and their legal representatives. McBride said all four concurred that the intent of the agreement was for the copyright to be transferred to SCO along with the intellectual property.

"It was clear that we did own the copyright," he said.

Novell also called on SCO to prove its claims that Linux has incorporated code from its UnixWare.

"SCO claims it has specific evidence supporting its allegations against the Linux community," Messman wrote. "It is time to substantiate that claim, or recant the sweeping and unsupported allegation you made in your letter. Absent such action, it will be apparent to all that SCO's true intent is to sow fear, uncertainty, and doubt about Linux in order to extort payments from Linux distributors and users."

McBride said the two firms had scheduled a meeting on Tuesday in which SCO would outline its concerns, but Novell did not show for the meeting.

While SCO's $1 billion lawsuit against IBM currently only charges the company with misappropriation of trade secrets, SCO has hinted that copyright infringement or even patent infringement charges might follow.

SCO told Linux users two weeks ago that they may find themselves in the crosshairs for using the open source operating system, sending letters to some 1,350 corporations warning that "Linux is an unauthorized derivative of Unix and that legal liability for the use of Linux may extend to commercial users."

SCO contends that portions of its Unix intellectual property have made their way into Linux illegally, and has backed up that claim with a $1 billion lawsuit against IBM. SCO's warning to Linux customers means the company's case against IBM is likely to be a closely-watched test bed for the company's ability to press its claims. SCO has also set a deadline, telling IBM it has until June 13 to come to terms with SCO or it will revoke IBM's license to AIX, IBM's flavor of Unix.

SCO's Chris Sontag, senior vice president and general manager of SCOsource, an arm of the company recently formed to license Unix System V libraries, has announced that the company has plenty of evidence that the Linux kernel -- including the official version maintained by kernel.org -- contains illegally copied SCO UnixWare code. He claimed that some of the infringement pre-dates IBM's involvement with Linux, while other code is the result of the alleged infringement that led SCO to launch its suit against IBM.

To back up the company's claim, Sontag said SCO, within the next few weeks, will invite an independent panel, under NDA to inspect its Unix source code and Linux source code side-by-side.

"In your letter, you analogize SCO's campaign against the Linux community to that of the record industry against major corporations whose servers contained downloaded music files," Messman wrote. "There are crucial differences between the two campaigns. The record industry has provided specific information to back up its allegation, while SCO steadfastly refuses to do so. In its allegation letter, the record industry provides evidence of allegedly infringing activity that is specific to the targeted company. This offers the company real notice of the activity, sufficient information to evaluate the allegation, and an opportunity to stop the activity if it determines the allegation is true. If SCO wants to compare its actions to those of the record industry, it should follow the example set by that industry and present specific evidence of the alleged infringement."

SCO issued a statement in response to Messman's letter Wednesday: "SCO owns the contract rights to the Unix operating system. SCO has the contractual right to prevent improper donations of Unix code, methods or concepts into Linux by any Unix vendor.

"Copyrights and patents are protection against strangers. Contracts are what you use against parties you have relationships with. From a legal standpoint, contracts end up being far stronger than anything you could do with copyrights.

"SCO's lawsuit against IBM does not involve patents or copyrights. SCO's complaint specifically alleges breach of contract, and SCO intends to protect and enforce all of the contracts that the company has with more than 6,000 licensees.

"We formed SCOsource in January 2003 to enforce our Unix rights and we intend to aggressively continue in this successful path of operation."

Meanwhile, open source guru Bruce Perens applauded Novell's decision to enter the fracas. "Novell has answered the call of the open source community," he said. "We admire what they are doing. Based on recent announcements to support Linux with NetWare services and now this revelation, Novell has just won the hearts and minds of developers and corporations alike."

SCO Wednesday reported net income of $4.5 million, 33 cents per diluted share, on revenue of $21.4 million in the second quarter of fiscal 2003. It cited its SCOsource initiative, which has led the company into a high-profile lawsuit against IBM and conflict with the Linux community, as a prime reason for that result.

"During the quarter ended April 30, 2003, the first two licensing agreements related to our SCOsource initiative, our division for licensing and protecting the company's Unix intellectual property, provided the company with $8.8 million in cash and added $6.1 million to gross margin. There are over 6,000 source code licensees of our Unix operating system, and we believe the SCOsource initiative will continue to gain momentum as we pursue enforcement of the company's intellectual property rights."

One of those two licensing agreements was unveiled last week, when SCO announced that Microsoft had licensed its property to "ensure intellectual property compliance across all Microsoft solutions."

McBride also projected Wednesday that the third quarter will see revenues in the range of $19 million to $21 million. "These projections anticipate revenue contributions of approximately two-thirds from our operating system platforms and one-third from our SCOsource initiative," he said.

That revenue may prove essential if SCO elects, as it has hinted, to pursue a copyright infringement case against IBM, or others in the Linux community, as opposed to just the misappropriation of trade secrets case it has currently filed against IBM.

"A misappropriation case is not particularly expensive," John Ferrell, founding partner and chairman of the intellectual property practice at Palo Alto-based law firm Carr & Ferrell LLP, told internetnews.com. "To the extent that they begin to raise copyright infringement issues and patents are ultimately brought in -- which they could well be -- this could be an incredibly difficult litigation for SCO."

He noted that Lotus fought Borland for the better part of a decade over copyright infringement and patents. "Both suffered badly by the time it finished in the Supreme Court," he said.

He also said that Rambus is currently pursuing a similar suit against Infineon in Virginia. "They've announced that their litigation fees were in the order of about $2 million per month for intellectual property litigation," he said. "This is a big undertaking."

In addition, he said that SCO may be financing its litigation fees with its income. "It will be interesting to see what their profit looks like next quarter," he said.

McBride said Wednesday, "We have set up a structure with our legal counsel that gives us a lot of staying power to enable us to both pursue claims and to defend claims that are made against us. We are set up to go for this for the long haul."

He added that the structure is based on a contingency.

But Columbia Law School Professor Eben Moglen, pro bono publico general counsel for the Free Software Foundation, has argued that SCO's case is moot.

"There is absolute difficulty with this line of argument which ought to make everybody in the world aware that the letters that SCO has put out can be safely put in the wastebasket," Moglen told internetnews.com, noting that SCO distributed its own version of Linux with a kernel that allegedly contains Unix-derived code.

"From the moment that SCO distributed that code under the GNU General Public License, they would have given everybody in the world the right to copy, modify and distribute that code freely," he said. "From the moment SCO distributed the Linux kernel under GPL, they licensed the use. Always. That's what our license says."

Moglen noted that SCO cannot readily make the claim that it inadvertently released the code, because the GPL requires that when code is released under its auspices, the developers must release the binary, the source code and the license, and the source code must be able to build the binary. Presumably, then, the binary functions the way the creators want it to function and has the capabilities they want it to have.

"This isn't an inadvertent distribution case," he said. However, he noted that the Free Software Foundation works with companies to ensure that they do not release anything under the GPL that they do not intend to release. In fact, he said, when SCO first filed its suit against IBM, he approached SCO's lawyers because it is the Free Software Foundation and not IBM which holds the copyright to the Linux distribution IBM created, Linux for S/360. IBM created the Linux distribution but released it under the GPL and signed the copyright over to the Free Software Foundation.

But while Moglen said that SCO will have trouble making that inadvertent distribution argument stick, SCO's corporate legal counsel seems to be taking just that tack.

"The GPL, by its terms, only applies to software programs or works which contain a notice 'placed by the Copyright Holder saying it may be distributed under the terms of this General Public License,'" SCO's legal counsel said, according to SCO spokesman Blake Stowell. "The following rules follow from this provision of the GPL:

  1. "To the extent a developer who contributes code is not the actual "copyright holder" of the code (i.e., instances of pirated code) as defined by the GPL.
  2. "To the extent a developer contributes code to which he claims copyright, but it is in fact an unauthorized derivative work of a properly copyrighted software, the open source developer does [not] actually own the copyright and is therefore not the "copyright holder" as defined by the GPL.

"In other words, the GPL itself covers situations where code is improperly or accidentally contributed to the GPL without proper authorization of the true copyright holder."

Unix Background
Unix was developed at AT&T's Bell Labs in 1969, but its history since then has been convoluted at best, leading experts like Open Source Initiative President Eric Raymond to delineate definitions for various operating systems that fall into the Unix family. Raymond uses "genetic Unix" to describe those operating systems which are derivative works of the original Bell Labs Unix.

Outside contributors, especially academics working from UC Berkeley and other institutions, supplied much of Unix's development after 1975, according to Raymond. Around 1980, Berkeley Unix hackers added Internet capability to the code base. By 1990, the relationship between AT&T's Unix Systems Laboratories (USL) and Berkeley had soured, leading to a three year lawsuit with a settlement that severed Berkeley's version of the Unix source, BSD, from AT&T. In 1992, the Unix trademark passed to the Open Group, a technical standards consortium which now maintains the Unix standard. Unices which adhere to and verify conformance with the standard are "trademark Unix" operating systems.

The Bell Labs code passed from AT&T to USL when AT&T spun it off in 1992 in a joint venture with Novell (the Unix trademark went to Open Group -- then known as X/Open -- as part of the deal). Novell bought AT&T's stake in USL in 1993. The property then passed from Novell to SCO in 1995. Meanwhile, the Unix universe had seen a birth of a number of other Unices, including:

  • AIX, IBM's Unix, a proprietary genetic and trademark Unix developed between 1987 and 1990
  • Solaris, the proprietary genetic and trademark Unix used by Sun Microsystems
  • SCO Open Server, SCO's version of Unix, a proprietary genetic and trademark Unix dating back to the early 1980s
  • BSD, an open source genetic Unix, but not a trademark Unix, which now has three variants of its own
  • Linux, an open source variant developed in Finland in 1991 which Raymond said is neither a genetic Unix nor a trademark Unix.

SCO added UnixWare, the brand name carried by later versions of Bell Labs' Unix, after it acquired it in 1995. In the meantime, to further muddy the picture, System V, the Unix that later evolved into UnixWare, borrowed from 4.4BSD, leading Berkeley to sue.

"It seems that from as far back as before 1985, the historical Bell Labs code base has been incorporating large amounts of software from the BSD sources," Raymond said in OSI's position paper on the SCO-vs.-IBM complaint. "The University's cause of action lay in the fact that AT&T, USL and Novell had routinely violated the terms of the BSD license by removing license attributions and copyrights."

The lawsuit was settled and the record sealed.