November 19, 2003

SCO: Winners and Losers

Author: John O'Sullivan

The end game in the SCO fiasco is at hand. IBM's dissection of SCO's discovery wish-list is covered in exquisite detail at Groklaw. As yesterday's conference call demonstrated, SCO's lawyers are being forced to make increasingly bizarre arguments to just stay in the game. The company's last substantive filing demanded that the court find the GPL invalid and unconstitutional, and all software released under the GPL in the last three years to be public domain. At this point, it appears the entire SCO case will devolve to the nuts and bolts of contract agreements between IBM and AT&T. If you believe that IBM lawyers are stupid and sloppy, and have been for the last 20 years, then you might believe SCO has a chance. I don't.

In other news, SCO has disclosed in an SEC filing that it hasn't issued a single Linux IP license. Its entire $15.3 million in source code revenue for the year to date has come from Sun and Microsoft. A study published on October 13 by Credit Suisse First Boston and reported on ZDNet shows that 83% of corporate CIOs had not re-evaluated their Linux deployment plans as a result of the SCO lawsuit. The investment in the company by BayStar and RBC Dominion doesn't change anything. SCO still doesn't have a legal leg to stand on. And it has no business apart from the lawsuit. Their restated threat to sue end-users (and maybe BSD vendors as well) may draw more Red Hat-type suits. An angry IBM is drawing the noose ever tighter. Red Hat is hammering them in Delaware. They still don't have a clue, a hope, or a prayer.

Despite the inevitability of the result, the game still has to be played out. And there will be more interesting twists and turns before the end. But that end is no longer in doubt (not that there was much doubt all along). It may be too early to assess the winners and losers in this curious episode, but it's fun to do anyway. Here is my take on how the players have done so far and will fare in the near future.

IBM -- Big Winner
IBM has had several opportunities to take an expedient exit from this mess. To its credit, it has not. Instead, it has aggressively counter-litigated SCO's claims. While HP tried to play both sides with its promise of indemnity, IBM showed it understands what OSS really means by refusing to do the same. IBM's solid stance in this matter has provided a shield of credibility for the OSS community in the mass media. Its contribution can't be overstated.

Red Hat -- Winner
Our St. George, set to slay the dragon. As the biggest independent Linux vendor, it was certainly in Red Hat's interest to challenge the increasingly bizarre FUD coming out of SCO, but that doesn't lessen its contribution in doing so. The suit makes good business sense, and the passion the company is bringing to it is above and beyond the call of Wall Street. Good for them.

Groklaw -- Winner
How did we ever get by without this site? Groklaw is the kind of thing I always dreamed the Internet would enable: A place where you can get not only the important documents, but informed and educational commentary as well. The site's authors have devoted an enormous amount of time and effort to the cause. Their efforts have resulted in a well-informed community response to SCO. Rather than just invective, critics have had tangible legal logic to counter SCO's FUD.

RMS & FSF -- Winners
Let's take a minute to thank the man who came up with the triumphant GPL. Richard Stallman came to grips with the issue of digital property years before most people realized it was an issue. He crafted a document that was so legallysound it has never been challenged in court. That is, until the morons from Linden ran out of rationales to keep their little game going. Five years ago, who would have believed that IBM was fighting a court case using the GPL as a primary weapon?

Eric S. Raymond -- Big Winner
ESR was the indispensable man. He assumed the role of OSS point man and mobilized the community to resist. Right from the start, he pushed SCO on the underlying issues, and in particular, the status of Linux. This, in part, forced SCO to elevate its complaint from a trade-secret issue to an all-out attack on the GPL. SCO probably would rather have kept things focused on IBM, the better to execute its buyout blackmail. ESR also co-authored (with Rob Landley) the OSI Position Paper on the SCO-vs.-IBM Complaint. If anything could be said to kill SCO's "big lie" PR campaign, this was it. The paper deconstructed SCO's complaint with caustic logic. Armed with this document, any reasonably literate high-school student could have won IBM's end of the case. The impact was immense, making it clear to most journalists, analysts, and industry watchers that SCO couldn't possibly win in court. As such, it represents the turning point. Raymond also managed, through his mobilization, to make it clear that the OSS community is no walkover. Companies seeking quick hits against the seemingly unorganized mob that make up the OSS community had better think twice.

Open Source Community -- Winner
The community won big and lost a bit, emerging as a net winner. On the one hand, people with very different agendas came together to fight a perceived threat. It's now clear that the mobilized community can take on almost anyone or anything. Also, the foundation of OSS, the GPL, appears to have been both vindicated and validated. On the other hand, the unavoidably chaotic nature of the community has yielded some very stupid and damaging acts, such as the alleged denial-of-service attack against SCO's Web site. The zealots that try to carpet bomb anyone critical of GNU/Linux or OSS have damaged the credibility of the whole community. Mainstream journalists have become wary of appearing on the zealot radar. But no serious journalist can dismiss the OSS community as fringe elements anymore.

SGI -- Winner
I'd just about forgotten about SGI. It was dragged unwillingly into the fray, but acted nobly when faced with the heat. It took the blame for its mistakes, put them in context, and told SCO politely to get stuffed. I think SGI deserves a round of applause.

Linus Torvalds -- Null
No change is the best result for Linus. There is no upside for him in the dispute, only downside. By keeping his head down and his mouth shut, he has managed to treat the episode as nothing more than a distraction. I wouldn't have been as strong. Before all this, nobody had doubts about the IP status of the Linux kernel. When its done, nobody will have doubts about the IP status of the Linux kernel. So the result is thankfully null for Mr. Torvalds.

Sun Microsystems -- Null
I see Linux as a single entity. An astute poster at Groklaw observed that Sun sees it differently. Sun sees a clear distinction between server Linux and desktop Linux. It loves desktop Linux and hates server Linux. That explains a lot. In a perfect world, Sun would pay a price for its support of SCO, but I think that the people it annoyed are people it would have annoyed eventually anyway. The case has done nothing to advance or hinder its agenda, so the net is no-win/no-lose for Sun.

Novell -- Null
Wow, where did they come from? One minute Novell's bleeding on the floor, the next it's one of the leading players in the Linux business. They keep getting dragged into this mess, and they keep wriggling out again. With Darl's threat that he would sue Novell for violating a non-compete agreement, they may not be able to wriggle out this time. But I just don't see SCO managing to do any damage, so I'll call the result null for Novell.

SCO and its shareholders -- Big, Big Losers

  • Entry from the Oxford English Dictionary, 2010 edition:

SCO -- 1) a defunct software company, 2) popular euphemism for pariah.
The company may have had little viability before this sorry expedition, but it will have none after. Red Hat and IBM will certainly win damages. Then there is the inevitable shareholder class action suit. It's nice of BayStar and RBC Dominion to pony up the funds needed to pay all these people off. What of any value will be left? Nothing, just a smoking crater in the Utah desert.

Darl McBride and the gang -- Big Losers
I have no idea if they will go to jail, although I think they deserve to. But between the SEC, the FTC, disgruntled shareholders, and the like, there should be plenty of ammo for that particularly American form of punishment, lawsuits without end. I don't think Darl will be CEO of any public company again, ever. Chris Sontag should also be singled out for special mention. This is his racket. See you in court, Chris!

Canopy Group -- Loser
The poison stain of SCO will eventually spread to everyone that touched it. Canopy and its principals are going to find it hard to get respect. If they are smart, they'll put all their future investments into T-bills, because the only deals they will see from now on will be dogs.

HP -- Loser
HP tried to play both sides and looked bad doing it. Its indemnity program should have made it a hero, but instead it came off as cynical and self-serving. If I were a CIO contemplating a big Linux installation, who would I trust more, IBM or HP? Six months ago, it would have been a toss-up. Now it isn't.

Microsoft -- Loser
There is no direct result for MS from the dispute. Its funding of SCO has not lost it any friends. However, anything that's good for the OSS community has to be bad for Microsoft on some level, and the community as a whole has emerged stronger. The likelihood that the GPL will finally be validated in a federal court will be considered bad news in Redmond.

Deutsche Bank -- Loser
A late entrant, DB came out on October 16 with a buy recommendation on SCO stock. The general reaction was, "What?" Dion Cornett, the only other analyst that covers SCO, said DB's recommendation was "a mistake... Investing in SCO is like buying a lottery ticket. I think at the end of the day, the lottery ticket is not a winner." Ah, but then on October 17, SCO announced the $50 million investment from BayStar and RBC. Hmm, was the Deutsche Bank analyst making recommendations based on insider knowledge? Or is he psychic? Inquiring minds want to know. IBM wants to know and served DB with a subpoena. I hope the SEC will want to know as well.

Rob Enderle -- Loser
Nobody likes a shill, especially a shill that bets on the loser. I notice that GigaWeb has a prominent notice that he no longer works there. Have they been getting DOS attacks, or are they just really glad to see him go?

David Boies -- Loser
We loved him in the DOJ/MS case, but he's been a loser since. Napster, Al Gore, and now SCO. One of his associates made public pronouncements so stupid that law professors were falling over themselves to denounce him in the media. And then they came up with the "GPL is unconstitutional" argument. But they've topped even that today by announcing they will sue a "big Linux user" within 90 days. I get the feeling the legal community is watching in horrified disbelief. Nothing attracts a crowd like a car wreck.

United Linux -- Loser
This grand alliance seems to have sunk like a stone. It doesn't help that the biggest contributor, SuSE, is going gangbusters on its own. It was a SuSE/IBM alliance that took the Munich city government contract from Microsoft. Even before the Novell deal, SuSE didn't need United Linux anymore. The fact that SCO has cleared the room faster than a rotting skunk is a convenient accident. Don't look for SuSE/Novell to rush back into the alliance when the smoke has cleared.

BayStar Capital & The Royal Bank of Canada, Dominion Securities -- Losers
Even for a bank the size of RBC, US$30 million is a considerable sum. Apart from dark murmurs about RBC and BayStar fronting for someone else, there is no credible explanation floating around for this apparently irrational funding. Why would these two invest? And why now? Some felt that it must mean SCO had an ace, but SCO's pathetic defense against the IBM counter-claim suggests otherwise. In the absence of information about what RBC and BayStar hoped to achieve, I tentatively label them as losers because it looks like their $50 million will end up going to pay for IBM's and Red Hat's lawyers.


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