• United States

SCO sues IBM for $1 billion

Mar 07, 20034 mins

Unix developer The SCO Group has filed a lawsuit against IBM charging it with misappropriation of trade secrets, unfair competition and other illegal actions related to IBM’s Linux business. The suit seeks at least $1 billion in damages.

The SCO Group this week filed a $1 billion lawsuit against IBM, alleging Big Blue tried to destroy the value of Unix to benefit IBM’s own Linux business.

SCO’s complaint, filed Thursday in the State Court of Utah, claims misappropriation of trade secrets, tortious interference, unfair competition and breach of contract on the part of IBM. IBM could not be reached for comment.

“We are alleging that IBM misappropriated the research-and-development resources previously dedicated to AIX to benefit their Linux business,” said Darl McBride, president and CEO at SCO, in a conference call Friday announcing the lawsuit. “This is a direct violation of their Unix contract with SCO.”

IBM entered into a Unix license agreement with AT&T in 1985 to produce its AIX operating system. SCO inherited AT&T’s interest in the IBM agreement in 1995 when it purchased rights to the Unix operating system and UnixWare — including source code, source documentation, software development contracts and licenses — which AT&T originally owned.

SCO is demanding that IBM cease within 100 days what it deems anticompetitive practices, or SCO will revoke its AIX license. SCO seeks at least $1 billion in damages.

Founded in 1979, SCO was one of the first commercial Unix vendors, and the leading vendor of Unix on Intel, when upstart Linux company Caldera acquired it in August 2000. The acquisition was seen as ironic by some industry watchers, because Caldera – a Linux company – was buying much of SCO’s core Unix intellectual property, from which Linux was modeled. At the time, SCO’s UnixWare product for Intel servers was the most-shipped Unix operating system, with around 37% of the market in 2000, according to IDC.

While Caldera had hoped to take advantage of SCO’s large customer base and extended professional services arm, the new company saw itself in the red at the end of each fiscal year since the acquisition.

Caldera changed its name to the SCO Group in August, took on the old company’s logo, rebranded its Caldera OpenLinux and OpenLinux as SCO Linux, and reverted back to the old UnixWare brand name for the Intel-based Unix operating system. In January, the company announced the formation of its SCOsource division, created to manage the company’s Unix intellectual property rights.

Boies, Schiller and Flexner filed SCO’s complaint. David Boies, the lead lawyer in the U.S. Justice Department’s Microsoft antitrust case, is managing partner at the law firm. SCO announced in January that the firm had been retained to research and investigate possible violations of SCO’s intellectual property. The vendor wanted to be “a little bit more aggressive than we have been in the past at enforcing our intellectual property,” said Chris Sontag, senior vice president of SCO’s operating systems division, in a previous interview.

In the conference call, McBride was unclear about whether more lawsuits would follow.

That SCO chose IBM as the first target of its legal offensive has upsides and downsides, says Brian Kelly, a Fenwick & West partner in Washington, D.C., who specializes in IT intellectual property.

The upsides are that IBM has deep pockets, so seeking large amounts of money is feasible, and that suing IBM has a high public relations value in terms of attracting media attention, Kelly says.

The main downside is that by now IBM has so much money invested in its Linux efforts that it will have little incentive to capitulate and seek a settlement, and probably will be willing to devote a significant amount of money and legal resources to fight the lawsuit, Kelly says. Had SCO chosen to go after a smaller company, such as a small Linux distributor, its chances of getting the upper hand in a settlement would have been better, he says.

Regarding SCO’s claims, Kelly says it’s too early to determine how valid they are, especially without hearing IBM’s reaction.

Eric Raymond, president of the Open Source Initiative, a nonprofit corporation that promotes the concept of open-source software, says SCO’s chances of succeeding against the much bigger IBM are “vanishingly small.”

“SCO’s motivation is desperation, because it doesn’t have a business left,” Raymond says, referring to the financial problems the company has faced.

IDG News Service correspondent James Niccolai contributed to this story.