SCO Sues IBM Over Unix Trade Secrets

Caldera Systems’ parent company, SCO Group, filed a lawsuit charging IBM Corp. of misusing a Unix software license, which in turn allegedly cost the software development company billions of dollars of revenue.

The suit, filed Thursday in Utah state court in Salt Lake City, alleges IBM has
shared trade secrets regard Unix with members of the free software
community, which Caldera says was done illegally.

Caldera does business under the name SCO Group, and specializes in making
sure Unix systems operate with computers using Intel Corp.’s microprocessors.

Caldera said it has been hurt by the growth of the Linux operating system,
which mirrors Unix in many ways, and also runs on Intel microprocessors.
Caldera said that once IBM adopted Linux with some of its programmers and
partners, it shared details of the Unix operating system that Caldera had
licensed to it.

SCO Group, in the complaint said IBM acquired its Unix license in 1995, and
there were strict limitations on what intellectual property could be shared
with other parties, as part of that agreement.

IBM’s interest in the Linux operating system is to sell hardware, software
and services to companies that are utilizing the free, open-source code
operating system.

Addressing the serious allegations in a conference call, SCO President and CEO Darl McBride said IBM has “made concentrated efforts to
improperly destroy the economic value of Unix, particularly Unix on Intel,
to benefit IBM’s new Linux services business.”

McBride said IBM has misappropriated trade secrets and seeks unspecified
damages that could potentially exceed $1 billion. But McBride also weathered piercing questions from analysts and the media.

For example, one journalist said he’d heard that IBM had recreated the Unix code for its own version of Unix, AIX, and questioned whether such a derivative constituted a breach of contract. McBride was also asked if SCO had “physical” pieces of code that IBM misued. But McBride refused to answer those directly, stating SCO does have a legitimate case and that the details would come to light later.

McBride also repeatedly noted that the case is against IBM only, and not an “attack on the Linux community, or the open source community.”

“IBM is engaging in practices that benefit Linux, but they are out to destroy Unix,” McrBride said.

This notion was met with skepticism by some on the call. Gartner Vice President and Research Director George Weiss said he couldn’t understand why IBM would want to destroy Unix when it is one of the “top 3 Unix sources” in the server market. Weiss questioned why IBM would scuttle Unix efforts to build up Linux.

“That’s a good question for IBM,” McBride said. “I can’t speak for them.”

One caller suggested SCO was going after IBM because of its own dire market situation, considering that the $1 billion settlement would do much to unburden the company but McBride demurred, saying SCO has a valid complaint.

McBride stressed that SCO began negotiating with IBM some time last December, but chose to enter litigation because “negotiations had reached an impasse and a settlement could not be reached amicably.”

IBM responded to the claim in LinuxToday*, noting that although it has not had sufficient time to pore over the filing, it doesn’t think the allegations have merit.

Meanwhile, McBride is confident in SCO’s claim.

“It is clear from our stand point that we have an extremely compelling case
against IBM. SCO has more than 30,000 contracts with UNIX licensees and
upholding these contracts is as important today as the day they were
signed,” McBride said.

After examining the lawsuit document, Gartner’s Weiss told that SCO cited no specific pieces of code in the filing, which he said puzzles him as to how SCO has a case. In fact, he said the crux of the evidence appears to hinge on certain marketing statements IBM made in in 2000 and 2001 on the prospects of Linux in the market.

“I was surprised by the way it was structured,” Weiss said. “They made it sound as though IBM is the villain and is taking market share away from them. There are certain contradictions. One is that they believe that [IBM] deprived SCO of its market opportunity, specifically on the Intel server market, by going to Linux. They’re saying IBM has squelched their proprietary system Unixware. Well, SCO has a Linux business. They haven’t been doing all that well in the market and they seem like they’re picking a fight with a big gorilla.”

Weiss didn’t go far as to say SCO was trying to extort money from IBM by claiming $1 billion in damages, but conceded SCO may be lashing out because it is frustrated by its current position.

“They’re not making any headway, their share price is down, and their overall prospects of generating revenues and profit is looking bleak,” he continued. “But they have been an outspoken proponent about open source and they are a part of UnitedLinux. I just don’t think this is going to hold up. I think there will be trouble justifying it.”

Worse yet, Weiss said this could potentially hurt the Linux community though SCO has been adamant that its problem is solely an IBM-based affair.

Caldera and SCO Group are
being represented by David Boies’s law firm Boies, Schiller & Flexner.

The high-profile Boies is perhaps best known as the attorney who prosecuted the U.S. Justice Department’s antitrust case against Microsoft, but he also staunchly defended Napster in the face of the RIAA. The
suit alleges not only the misappropriation of trade secrets, but also
tortuous interference, unfair competition and breach of contract.

Unix was originally developed by AT&T labs between 1969 and the 1980s, and
SCO acquired much of the intellectual property associated with Unix through
a series of acquisitions.

*LinuxToday is an sister site.

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