Deadline Looms for IBM’s AIX

A deadline is looming for IBM to come to resolution with SCO Group over alleged Unix contract violations or risk the revocation of its AIX license. SCO said Big Blue has until Friday to reach a deal, with midnight as the drop-dead point.

SCO said it sent a letter to IBM Chairman and CEO Sam Palmisano on March 6, warning
him that IBM had allegedly breached its contract with SCO by contributing
portions of its Unix-based AIX code to the open source movement, and by introducing
concepts from Project Monterey, a joint effort by SCO and IBM to develop a
64-bit Unix-based operating system for Intel-based processing platforms,
into Linux. IBM scrapped Project Monterey in May 2001.

With the letter sent, SCO initiated a 100-day clock, after which it said it has the right to revoke IBM’s Unix license, which IBM entered into with then Unix source code owner AT&T in February 1985.

In the letter sent to Palmisano, SCO spelled out the steps that it requires
IBM to make to allow it to keep its Unix license and keep selling the AIX
operating system.

“SCO is also demanding that IBM cease these anti-competitive practices
based on specific requirements sent in a notification letter to IBM,” SCO
said in a statement on March 7, the day it filed a $1
billion lawsuit
against IBM for “misappropriation of trade secrets,
tortious interference, unfair competition and breach of contract.”

“They need to correct the actions they’ve been taking with regard to our
Unix source code and that’s ultimately what we want,” SCO spokesman Blake
Stowell told Thursday with regard to SCO’s
resolution terms.

“Monday will probably be the first day that we can actually do anything,”
Stowell said, assuming that IBM does not reach terms with SCO by midnight
on Friday. He added, “We’re not commenting at this point and time on what
Monday will look like.”

However, he did note, “While revoking of that license would make [IBM’s]
customers’ licenses obsolete, at this point in time we’ve elected not to
take that approach with customers. That’s not to say we won’t at some
point. But we see the customer as an innocent bystander right now.”

He added, “What we would encourage AIX customers to do right now is make
IBM assure them that they’ll do everything they can to try and bring this
to full resolution. I think that IBM needs to indemnify their customers and
right now I don’t see how they can do that.”

While IBM has kept mum about SCO’s action, indications are that it has no
intentions of dealing with SCO on this matter.

“IBM’s position is that our contract is perpetual and irrevocable and there
is nothing further to discuss,” IBM spokeswoman Trink Guarino told Thursday. She added, “We do not see momentum
slowing anywhere, either with AIX or Linux.”

In a research note based on a meeting with Bill Zeitler, IBM senior vice
president and group executive of the Systems Group, Deutsche Bank
Securities analyst George Elling said Zeitler defended IBM’s case against
SCO by noting Big Blue’s 700 existing or pending patents related to AIX.

“Regarding Linux and open source software, Mr. Zeitler made it clear that
he believes vendor strategies to lock customers in to a proprietary
environment will fail,” Elling wrote in his note. “He believes customers
are now looking for choice in their operating environments and that they
are very careful not to get locked in to any one vendor.”

That may have been a subtle jab at SCO, which, though it has only accused
IBM of misappropriation of trade secrets, has made no bones about its
stance that “Linux is an unauthorized derivative of Unix and that legal
liability for the use of Linux may extend to commercial users.”

It sent a letter
to that effect to some 1,350 that use Linux, warning them, “similar to
analogous efforts underway in the music industry, we are prepared to take
all actions necessary to stop the ongoing violation of our intellectual
property or other rights.”

Legal and open source experts have suggested that SCO may have some trouble pressing its claims on that front,
especially in light of its own sales of Linux. The company also faced a
challenge from Novell , which acquired Unix from AT&T in
1993 and later sold it to SCO in 1995. Novell claimed
it had retained the Unix copyrights and patents when it sold Unix to SCO.
That made SCO’s ability to press claims about copyright infringement

However, Novell backed away from that stance last week after SCO uncovered
an amendment to the 1995 SCO-Novell Asset Purchase Agreement.

“To Novell’s knowledge, this amendment is not present in Novell’s files,”
Novell said in a statement. “The amendment appears to support SCO’s claim
that ownership of certain copyrights for Unix did transfer to SCO in 1996.
The amendment does not address ownership of patents, however, which clearly
remain with Novell.”

Still, Novell reiterated its request that SCO either prove its allegations
that Linux improperly includes Unix code, or retract the statement.

“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,” Jack L. Messman, chairman, president
and CEO of Novell, wrote to SCO President and CEO Darl McBride in an open
letter on May 28.

SCO has begun showing code to certain select experts and analysts under
non-disclosure agreements. Stowell said it is showing different instances
to everyone, and at least one instance has been 80 lines of code.

Meanwhile, based on his conversation with Zeitler, Deutsche Bank’s Elling
said IBM’s fortunes are improving.

“We believe IBM continues to be well-positioned to take advantage of an
uptick in IT spending, and in our view, the company has a strong server
lineup from low- to high-end,” Elling said. He added that the company
expects the second quarter of 2003 to be the largest shipment quarter for
large systems in IBM’s history.

“Mr. Zeitler acknowledged the sharp decline of server sales in recent
years, pointing to a $65 billion market in 2000, compared to a $49 billion
market in 2002,” Elling said. “He also noted that the declining market
reflected technology substitution trends from traditional RISC environments
to Linux and Intel-based platforms. However, Mr. Zeitler emphasized that
the rate of server pricing declines is slowing (from a decline of 19
percent a year ago to a decline of 10 percent in the most recent quarter)
and that unit volume sales have actually increased year-over-year for each
of the past three quarters. These factors lead the company to believe that
it will start to see growth in servers in the future.”

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