March 10, 2004

Commentary: SCO's Tapestry of Lies

Author: Bruce Perens

SCO management had a problem. Their quarterly financial report was
going to show only twenty thousand dollars in income for their
SCOSource licensing program. And so, in an announcement timed to
distract people from the bad financial report, SCO announced two
new lawsuits and license purchases from Computer Associates,
Leggett and Platt, and EV1 Servers.

Computer Associates' CEO was quick to blast SCO, pointing out
that CA had settled a breach-of-contract suit unrelated to Linux
with Canopy Group - SCO's main investor - and one of its other companies,
Center7. The settlement terms compelled CA to purchase some
licenses from SCO, and required that CA not
disclose those terms. Leggett and Platt managers who were asked
about that company's license purchase scratched their heads, maybe
someone in the company had purchased a license, but they'd asked
around and they didn't know about it. And EV1 Servers' CEO says he
didn't pay nearly what SCO claims he paid.

When a company arranges for the appearance of sales, the way SCO
seems to have done with CA and most likely has done with other companies,
that's called window dressing.
It's something that companies do to make their stock look better than
it actually is.

On the same day that CA blasted SCO, Open Source evangelist Eric
Raymond revealed a leaked
email
from SCO's strategic consultant Mike Anderer to their
management. The email details how, surprise surprise, Microsoft has
arranged virtually all of SCO's financing, hiding behind
intermediaries like Baystar Capital. SCO spokesperson Blake Stowell
has admitted that the email is real, but called its implications a
"misunderstanding", while Microsoft softly called them
"not accurate". We'd hear stronger denials if there wasn't some
truth there.
This was followed by
a comment from the the Securities
and Exchange Commission that, yeah, they're interested. Mr. Anderer, expect to
see lots of subpoenas with your name on them.

SCO has suffered other setbacks recently, in their lawsuit against
IBM. First, the company dropped all breach of trade-secret
allegations
against Big Blue. The time had come and gone for SCO to
provide evidence regarding those allegations, and it hadn't been
able to support them.
And then came a ruling on
the discovery process in the case.

The ruling requires SCO to finally reveal, with specificity,
what code IBM has copied from Unix to Linux, on the same day that IBM must deliver
the source code of IBM's AIX Unix system to SCO for
examination. The ruling is calculated to show what infringement SCO
could allege just by looking at the published source code for
Linux. SCO will then have two weeks to look at AIX, and make
additional allegations regarding the transfer of IBM's AIX source
code to Linux.

We have yet to see SCO's specific infringement claims, but we can expect them
to follow the two general theories of copyright infringement that they've
stated in the case or in other public venues.

SCO alleges that code that IBM
wrote on its own for AIX became SCO's property or is otherwise
encumbered by SCO due to terms
of the Unix license that IBM acquired from ATT, the creator of
Unix. According to SCO, IBM does not have the right to put in Linux
any code that has ever touched Unix. That's why the judge is giving
SCO a peek at AIX. But SCO's interpretation of the Unix license was
refuted by ATT itself when they announced a change in the
license terms in their August
1985 Echo newsletter
sent to all Unix licensees. ATT wrote:

Section 2.01 - The last sentence was added to assure
licensees that AT&T will claim no ownership in the software
that they developed -- only the portion of the software developed
by AT&T

SCO is the "successor in interest" to the ATT license. They'll have
to honor ATT's terms and ATT's own interpretation, and thus their
claim on IBM's code will fail.

SCO's remaining copyright infringement theory is regarding the
Unix API or ABI. SCO says that Linux contains copies of
a number of the header files that define the Unix API or ABI.
But SCO doesn't own
that information. When Novell sold off the Unix business they'd purchased
from ATT, they transferred the Unix definition and trademark to
The
Open Group
, while SCO was sold some rights related to the Unix implementation. The Open Group
maintains the Unix definition today as their Single Unix Specification, and
they assert that anyone can implement it without a copyright
encumbrance.

Indeed, the header files in question were released for the
public to implement without a copyright encumbrance on five
separate occasions in all. These included:

  • ATT's release for the ANSI C Language Standard.
  • ATT's release for the U.S. Government POSIX standard.
  • The USL v. BSDI court case of the early 1990's, in which ATT's
    Unix System Labs
    was found not to have a defensible copyright interest in Unix.
    Thus, Unix was in the public domain.
  • The transfer of the Unix definition
    to the Open Group
    .
  • The release
    of all ATT Unix implementations under the BSD license by Caldera
    (which now calls itself SCO) in 2002.

The chairpersons of the standards organizations are still living
and able to testify regarding ATT's copyright releases, and the
rest of the releases are documented in public records. And thus
SCO's remaining allegation of copyright infringement will fall.

SCO's suit against Daimler Chrysler alleges that Daimler failed
to give SCO an accounting of their use of Linux, which SCO feels is
a violation of their Unix license. Daimler is a very large company
used to nuisance suits. Their legal department alone is several
times the size of SCO's entire staff. This suit places SCO in an
expensive two-fronts war against the giant companies IBM and
Daimler, or should we count the medium-sized companies Novell, Red
Hat, and AutoZone and say a five-fronts war? In selecting AutoZone
and Daimler, SCO was clearly targeting troubled companies that
might be more likely to settle than sustain a long lawsuit,
whatever its merit. But probably not likely enough. Companies that
settle lawsuits with no merit just buy themselves more, similar
lawsuits.

SCO's mounting legal costs have prompted a financial analyst at
Decatur Jones to forecast that SCO's stock will post a significant
loss. The same company downgraded its forecast of full-year
earnings from the SCOSource licensing program from $7 Million to
essentially zero in January ahead of news of the
twenty-thousand-dollar quarter.

SCO's suit against AutoZone is related to AutoZone's use of
Unixware compatibility software for Linux previously released for
free on the net by Caldera, before they stopped being a Linux
business. Apparently, AutoZone had old applications that ran on
Unixware and could not be recompiled. IBM documented their use of
the compatibility software in a case-study of AutoZone's migration
from SCO Unixware to Linux. This is unusual, in that most Linux
users will not be moving software that they can't recompile. But
Caldera, now SCO, gave that compatibility software away for years,
so they're going to have a very hard time showing that AutoZone
didn't have a right to use it.

SCO has run its campaign against Linux for over a year now,
kiting their stock from fifty cents to over twenty dollars on many
statements that, it is turning out, weren't true. When a company
makes unfounded assertions for a month or two, it can be dismissed
as a mistake or wishful thinking. When the distortions go on for a
full year, it becomes difficult to explain their behavior as anything
but a deliberate fraud meant to hurt Linux for Microsoft, their
financial backer, while bringing SCO Millions in stock windfalls.

Perhaps the saddest part of this whole fiasco is its human
dimension. Canopy Group was created and funded by Ray Noorda, who also
founded Novell. Noorda would have hated SCO's current strategy. In
fact, when the very similar USL v. BSDI lawsuit came up in the early
1990's, Noorda himself brokered the settlement between ATT's Unix System
Labs and
the University of California, so that Unix could go on without ambiguity.
But more recently, Noorda has been afflicted with a very severe senility
disorder and no longer participates in managing his own portfolio.

Canopy Group director Ralph Yarrow, the self-proclaimed
mastermind of SCO's strategy, was a graphic illustrator at Novell when he
befriended Noorda.
Noorda is said to have seen Yarrow as "the only
person who isn't after my money". Although we don't
have oversight on the privately-held Canopy group, people close to
the situation say that Yarrow has been generous to his own portfolio
with bonuses and other compensation. Yarrow will probably be the major person
to profit from SCO.

From a financial standpoint, Canopy Group has already won.
Because it's not a public company like SCO, we can't see all that's going
on there. However, we know that they have swapped some of their other
holdings, including a company called "Vultus",
for SCO stock. And of course they've multiplied the value of their existing
SCO stock as much as forty times over the past year.
I've no doubt that much of this stock has already been converted to cash.
The leaked email forecasts SCO's exit from this business in the near
future. When they exit, Yarrow and Canopy will walk away with tens of millions.

This article was originally published at http://perens.com/ and is reprinted here with the author's permission.

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