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Linux Litigation: What, us worry?

Free software! That siren song proved irresistible to major banks and other big businesses around the world. It may also turn out to have been too good to be true -- if bantamweight software shop SCO Group of Lindon, Utah, has its way.

Free software! That siren song proved irresistible to major banks and other big businesses around the world. It may also turn out to have been too good to be true -- if bantamweight software shop SCO Group of Lindon, Utah, has its way.

The $79 million-in-revenues SCO claims intellectual property rights to Unix, a widely used computer operating system that predates Linux. Some aspects of Linux -- which grew out of a grassroots programming movement in the early 1990s led by Linus Torvalds, then a student at Helsinki University -- are derived from Unix. Therefore SCO believes it has the right to charge licensing fees to virtually any Linux vendor and its customers. Those payments could add up to billions of dollars.

SCO has gone to great lengths to awaken the corporate world to its claim. Relying for legal strategy on Boies, Schiller & Flexner, the Armonk, New York­based firm of superlitigator David Boies, SCO sued IBM Corp. in March 2003, seeking at least $1 billion in damages for alleged licensing violations. In ensuing months SCO mailed letters to hundreds of Linux suppliers and users inviting them to negotiate licenses -- or else.

Last month SCO turned up the heat by suing two Linux users for unspecified damages: auto-parts retailer AutoZone and carmaker DaimlerChrysler Corp. They were "at the head of two different classes that are violating our agreements," Darl McBride, CEO of SCO, explained in a conference call. He was referring to alleged copyright infringers (AutoZone) and contract breachers (DaimlerChrysler).

Those companies say the suits are without merit, and many legal experts agree. Eben Moglen, a Columbia Law School professor and general counsel of the Free Software Foundation, says SCO's claims are "nebulous" and accuses it of trying to control "what it doesn't own." Torvalds, now affiliated with Open Source Development Labs in Beaverton, Oregon, has called SCO "the most despised company in technology."

Financial institution technology managers who embraced Linux systems as a low-cost alternative to licensed Microsoft Corp. and Unix-based products are equally dismissive.

"We take care to make sure we have proper licenses that protect us from any legal action," says Charles Schwab Corp. vice chairman Dawn Lepore. SCO's maneuverings are "a distraction from the business that we want to be focused on," adds Lepore, who has presided over one of the financial industry's most aggressive Linux implementations, with assists from suppliers IBM and Red Hat.

If it accomplishes nothing else, SCO is spreading "fear, uncertainty and doubt" over who might be sued next, says Jeanne Capachin, a research director at Financial Insights, a Framingham, Massachusetts­based research firm. She suspects that at least one major financial institution is on SCO's hit list.

Just the threat of litigation is likely to raise the cost of Linux systems, warns Brendan Barnicle, a technology analyst at Pacific Crest Securities in Portland, Oregon. Indeed, systems providers are bearing one new cost: They are indemnifying clients against litigation-related expenses.

"It's not that customers came to us and said that they were deeply concerned about getting a huge judgment against them," says Nick Collins, worldwide Linux marketing communications manager at Hewlett-Packard Co., which is contractually protecting its users against legal costs. "I just think the uncertainty factor was bugging some."

Collins maintains that the vendor guarantees should help reassure users and take some of the wind out of SCO's sails.

Although Pacific Crest's Barnicle believes that SCO lawsuits could slow the pace of Linux adoption, there is no denying the software's appeal.

"We have not seen this issue affect sales," says Leigh Day, spokeswoman for Linux specialist Red Hat, which added 3,000 customers in its fiscal quarter ended November -- 500 more than in the two previous quarters combined. Of 250 investment bank executives recently surveyed by Front Capital Systems, a SunGard Data Systems subsidiary, 16 percent were already using Linux and a further 17 percent anticipated doing so over the next 18 months.

"It's more of a legal issue than a technology decision-making issue," says Dushyant Shahrawat, a senior analyst at Needham, Massachusetts, research firm TowerGroup. "The only change is that everyone is gong to take a second look at the contract."