If one purchases a lottery ticket for one’s friend and that friends wins, how would one feel if that friend refused to share their winnings? It is very similar to the way Caldera International, Inc.(d/b/a SCO Group (“SCO”)), the current owners of a version of Unix, feels towards the Linux Community. To them, it appears as if the Linux Community, like Microsoft, has copied the look and dependability of Unix, and a controversy wages over whether they copied the actual source code. Thus, SCO is currently suing one of the deepest pockets in the Linux Community, International Business Machines (“IBM”), in an attempt to recover some of those “winnings.” A short background on the history of the company and the lawsuit will be helpful in understanding its implications.
Background on the Suit
SCO came to own the operating system known as UNIX through a complex chain of acquisitions. UNIX was first developed by AT&T’s Bell Laboratories in 1969. Novell bought AT&T’s version of UNIX in 1993 and subsequently sold UNIX to the Santa Cruz Operation in 1995. In 2001, Caldera International, which has its own version of Linux, purchased the Santa Cruz Operation giving it ownership of the UNIX operating system. Thus, the consolidated company now offers both Linux and UNIX operating systems. In 2002, Caldera International changed its name to SCO Group.
Fiscal year 2002 was a very dismal year for SCO with a 27% drop in revenues. SCO’s managers recognized the possibility of bankruptcy if revenues continued to drop or the company was unable to reduce operating expenses. Consequently, in 2003, SCO filed suit against IBM and other companies for infringing its intellectual property rights. SCO’s claim is based on the allegations that IBM has incorporated files from its proprietary UNIX operating system into the Linux operating system that would allow the Linux operating system to run UNIX programs. If SCO prevails, this lawsuit could provide the increased revenues SCO seeks since it would be able to block competition and/or obtain revenue from licensing of its products. It appears as if this lawsuit has become more essential to SCO’s survival since first quarter 2004 compared to first quarter of 2003 show that SCO has not been able to increase revenues and lower its expenses, as revenues dropped approximately 16% and losses doubled.
Novel Legal Question:
This case raises a novel legal question. The Free Software Foundation has created a license called the GNU General Public License (“GPL”). Under the license, the software can be distributed either free or for a fee, as long as the purchaser receives access to the source code. Access to the source code allows purchasers to fix any “bugs” and otherwise customize the program to their needs. Furthermore, the license prevents the seller from restricting how the purchaser distributes the source code. So technically, one person could simply purchase the software and post it online for the world to download free of charge and the seller would have no recourse. Finally, should a programmer decide to use any portions of the source code in a subsequent program, that programmer must release the new program under the GPL.
SCO has released a version of Linux that includes the necessary proprietary UNIX files, which allegedly have been copied by IBM. The Linux operating system is released under the GPL. If SCO’s version of Linux includes portions of the Linux operating system licensed under the GPL, the SCO’s version of Linux would have to be distributed under the GPL, including the disputed files. SCO has been very reluctant to release information regarding its lawsuit, including the technical details of its claim, so for the purposes of argument, I have assumed the above is true. Will the license retroactively apply to the proprietary UNIX files? Until the lawsuit is settled, the answer remains unresolved.
Implications:
The answer to that question will have far reaching implications. If the district court finds for SCO, the worst case scenario would be that every Linux user would have to pay licensing fees to SCO. Furthermore, it might allow Microsoft to greatly improve its software reliability by incorporating Linux source code into its Windows operating system since Microsoft would be able to protect its portions of proprietary source code.
Also, given SCO’s need to remain financially viable, it appears as if it will charge exorbitantly high licensing fees, which will reduce the competitive edge Linux has over other proprietary operating systems. SCO could also choose to sell various property rights to of its UNIX code to various investors. If SCO chooses this option, an “Anticommons” may form in the operating systems software industry that may discourage further innovation. The Anticommons often results when too many people have the right to exclude others from a resource, in this situation, source code. In such circumstances, the transaction costs of negotiating with everyone who has a claim to the resource acts as a deterrent against innovation. If SCO decides to sell parts of its intellectual property piecemeal, it may inhibit further developments in the software industry, since programmers who would normally contribute improvements to the operating system would be deterred by the costs of discovering who to purchase the rights from and by possible increased licensing costs.
Conclusion:
Given SCO’s dismal financial results, it appears as it is are depending on this lawsuit to survive. However, the company’s reluctance to be upfront with details may hint that it does not have a claim and that it is merely “fishing” for one. The case raises a novel legal question in the realm of intellectual property and may have far-reaching implications on the software industry. Please note that this is only a cursory analysis of the issues involved in this litigation. For a more complete picture, please visit Groklaw at http://www.groklaw.net.
