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SCO Forum 2003
Summary and Analysis
by Rick Smith (August 30, 2003)

Summary:

The 17th annual SCO Forum 2003 in Las Vegas was held at a climactic point in the SCO Group's lifetime. The company and their reseller channel are literally fighting for their lives.

SCO's stock has risen greatly during the past year and they are showing some profitable quarters, but SCO has thrust itself into a legal fight with the huge computer industry player, IBM Corporation. Not only is IBM now the second largest software company, but also is a formidable legal adversary who tends to outlast its opponents.

SCO asserts that they have the sole rights to the UNIX operating system source code and that IBM (and others) has taken portions of this code and placed it into the last two production release versions of Linux. Most of this code deals with enterprise usage and running multi-processor systems. In contrast to some reports, SCO is not out to crush Linux and has stated publicly that they have absolutely no legal issues or problems with any Linux versions 2.2 and below.

At the Forum

The 17th annual SCO Forum 2003 in Las Vegas was held during August 17th to 20th, 2003 at the MGM Grand Convention Center. This event is regularly attended by nearly a thousand of its resellers and avid users. Several people in the audience attended ALL of these Forums (and one even wore his original tee shirt from the 1987 event). Dozens in the audience had attended over ten SCO Forums.

Being at the MGM Grand, this year's event had a "James Bond" theme and the grand prize was a one-year lease of a BMW M4. (An automotive note, several different BMWs were used in Bond films. Most recent and probably the last BMW to be used in a Bond film, was the BMW M8 roadster from "The World is Not Enough".)

The IBM Lawsuit

This Forum was held at a very climactic point in the SCO Group's short lifetime, since the company and their reseller channel are fighting for their lives against the Linux operating system. The availability of free or very low margin versions of UNIX (i.e. Linux), have seriously eroded the profitability of many smaller resellers that support small to medium businesses (SMBs). But things are not desperate for SCO Group -- their stock has risen nearly 1000 percent in about a year and they are making a profit. But they now have a large legal fight on their hands, with one of the giants in the computer industry -- IBM Corporation.

IBM has been in legal battles before and they tend to outlast their opponents. IBM has even managed to outlast the U.S. Government when one of IBM's anti-trust cases was dismissed after 13 years. (It started during the Johnson administration in 1969 and was eventually dismissed in 1982, during the Reagan administration.)

The SCO v IBM case is far simpler than an anti-trust case however -- it involves both contract and copyright law. In the mainstream, this lawsuit has turned itself into a SCO v Linux issue and that SCO wants to eliminate Linux forever. This is simply NOT correct.

SCO and the UNIX source code

It is SCO's assertion that IBM has placed code from their AIX (UNIX-based) operating system into Linux, namely in the 2.4 and 2.6 kernel versions. SCO has absolutely no concerns with the source code for Linux versions 2.2 and below. It is SCO's assertion that the addition of more recent code has been one of the key reasons why Linux has been so quickly transformed from a hobbyist's "free open source" operating system into a "mission-critical" system widely adopted by the largest corporations in the world.

I have seen some of the disputed source code, under a signed NDA (non-disclosure agreement). The section that I saw did appear to be virtually cut and pasted into Linux -- the variables were identical, the code was identical and even the syntax of the comments was identical. It doesn't take a rocket scientist to show that this code was copied, although SCO has hired NASA pattern recognition analysts to find more examples of less flagrant copying. Some of the copying has been disguised to hide the fact that is has been copied. (See "Assumptions" section on the last page of this article.)

You might say so what? Didn't AT&T and Bell Labs create the original UNIX? And now that AT&T is broken up, what happened? It turns out that SCO (Caldera at the time) bought the rights, copyrights and all related materials for UNIX, from Novell, in 1995, for over 100 million dollars. (And Novell bought Unix from AT&T's UNIX System Laboratories, when they were on their "get a network operating system at all costs" challenge with both Microsoft and IBM.)

So if SCO can PROVE that they own this source code, how did IBM get the code? IBM licensed this source code from AT&T. It turns out that AT&T sold licenses to Unix to nearly anyone who had the cash (6,000 licenses). IBM, Hewlett-Packard, SGI and many others each have licenses from AT&T. These licenses allowed them to use the source code to create their own "flavors" of Unix, but each of these newly created versions had to be kept in strict confidence, like the original source code. Even customers of these large vendors have to get special permission from SCO to see the source code.

And here comes the key part -- the contract that each of these companies signed, clearly stated that the licensee had to keep the source code completely confidential. Since IBM didn't, it is SCO's assertion that IBM is in violation of their contract (and also of copyright law, since the entire source code of UNIX is a copyrighted work.)

While this has been a heated debate in the Linux community, the contested sections effect only the enterprise features like using multiple-processors. If a new version of Linux, without the disputed code, could be created this matter would be quickly settled (but not without somebody paying damages).

While the price of used multiple processor machines are quite low, these enterprise features are NOT used in the majority of Linux installations. Corporations that want to use Linux, but want to avoid ANY potential lawsuits in the future, can currently license the technology from SCO. The details and cost of these licensing fees were NOT disclosed, but I will assume that it would be quite similar to purchasing a SCO Unixware license for each system in question.

Conclusion

Hard to say what will happen. SCO hopes the problem will be resolved quickly so the world can move on. SCO keeps the copyrighted materials they own and someone pays damages.

It is my opinion that IBM really did not display good strategic thinking a year ago. If IBM's goal was to turn Linux into UNIX and give it away, as an attempt to unseat Microsoft's enterprise strategy, then they should have made the whole problem go away for about $10 million. They simply would have BOUGHT SCO when their stock price was low (78 Cents/share). Isn't anybody doing strategic thinking at IBM anymore?

If they now execute on this strategy, it will cost IBM much more (SCO market cap at $190 million), but the strategy is still possible and affordable. I am surprised that IBM didn't attempt to buy the source code from Novell during that "fire sales", since IBM would have gained a tactical advantage over their other UNIX rivals. But the fact that Caldera, who did buy UNIX, was formed by Ray Noorda, the former CEO and founder of Novell, may have had something to do with it.

Currently it appears that IBM's strategy may be to simply follow the course that they have tread in the past with other legal cases. They will simply grind through the legal process for as long as it takes. (The 1969 IBM anti-trust case wasn't active until 1972 and went to trial in May 1975 -- six years later.) If IBM was to prevail in court, this would be an unfortunate result, since it would mean that a source code confidentiality contract would be meaningless. You could sign one and then begin giving away the source code you obtained to create a competitive, derivative work. I really hope that this doesn't happen.

Assumptions

  • While I did see one portion of the source code, the following items are assumed to be correct, because they have not been verified independently. Therefore this article and my opinions assume that:

  • Portions of UNIX code that I was shown are actually part of the UNIX source code.

  • Portions of Linux code that I was shown are actually part of the current Linux source code.

  • The contract that IBM signed specifically stated that they had to keep the source code secure.

  • There is no way to interpret the contract to allow IBM to "give away the source code" in any public or altruistic manner.

  • IBM (or its related parties) actually copied the code into Linux. With 6,000 UNIX contracts floating around, someone else could have stolen AIX code and simply put IBM's name on it.

    This final assumption may have been given greater validity due to a remark that was related to me by the CEO of SCO, which is also an assumption since I was not there. At the Linux World, in early 2003, an IBM executive (possibly Steven A. Mills) stated that IBM was going to place all of their source code technology into Linux to drive UNIX out of the marketplace. While this doesn't appear to make sense, at first glance, to "give away" technology, it would cause Linux to quickly become an "enterprise", "mission-critical" "open source" STANDARD. This is something that the various "flavors" of UNIX have been needed for years.

    This standardization would have an immediate, deleterious effect on Enterprise Windows, which I am sure IBM would enjoy. IBM saw the market share of their clearly superior OS/2 operating system erode due to Microsoft's better marketing of Windows 95 and they have not forgotten.

    SCO recently (19 May 2003) licensed UNIX technology, including a patent and source code license to Microsoft Corporation. While Microsoft's goal was cited to be "maintaining compatibility with UNIX", I am sure that many of Microsoft's operating system engineers will be looking at the code to find out why UNIX is SO reliable, while Windows servers need continual rebooting.

    Update: 25 August 2003: SCO's website fell victim to a DDoS (Distributed Denial of Service) attack from parties unknown, but suspected.

    Copyright 2003 Rick Smith All rights reserved.

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