Statement Regarding Red Hat Lawsuit and Letters to Red Hat
LINDON, Utah, Aug 4, 2003--
The following statement is being issued by The SCO Group, Inc. (Nasdaq: SCOX):
SCO has consistently stated that our UNIX System V source code and derivative UNIX code have been misappropriated into Linux 2.4 and 2.5 kernels. We have been showing a portion of this code since early June. SCO has not been trying to spread fear, uncertainty and doubt to end users. We have been educating end users on the risks of running an operating system that is an unauthorized derivative of UNIX. Linux includes source code that is a verbatim copy of UNIX and carries with it no warranty or indemnification. SCO's claims are true and we look forward to proving them in court.
Recent correspondence from SCO to Red Hat further explains SCO's position.
The first letter is from Bob Bench, CFO of The SCO Group, Inc., to Mark Webbink, Sr. Vice President and General Counsel of Red Hat, Inc., that SCO intended to send to Red Hat. After a conversation between Matthew Szulik and Darl McBride, Red Hat determined that SCO did not need to send this letter.
The second letter is one that was sent to Matthew Szulik today from Darl McBride after Red Hat's lawsuit was filed.
July 31, 2003
Mark Webbink, Esq.
Sr. Vice President and General Counsel
RED HAT, INC.
1801 Varsity Drive
Raleigh, NC 27606
VIA FACSIMILE: (919) 754-3700
Dear Mr. Webbink:
This letter is in response to yours of July 18, 2003 to Darl McBride, President and CEO of The SCO Group, Inc. ("SCO").
Before responding to your request, it is important to place your letter in context. Your letter follows on the heels of Red Hat's S-3 filing of July 7, 2003, in which your company revised its risk disclosure statement. In addition, SCO is currently engaged in litigation with International Business Machines Corporation ("IBM") regarding its role in the development of the Linux operating system. At the time of your letter, we had expected the possibility of a global resolution of SCO's intellectual property claims against all Linux-related companies that would have likely included Red Hat. This effort has apparently stalled, through no fault of SCO.
Based on the posture of our litigation and your revised risk disclosures, it is unclear to us the purpose of your July 18, 2003 letter. If you desire to enter good faith discussions to address SCO's intellectual property claims against Linux, either on behalf of a wider consortium of Linux companies or solely on behalf of Red Hat, we are willing to meet with you for that purpose. In any such meeting, we will provide example after example of infringement of our intellectual property found in Linux. Of course, any such demonstration must be pursuant to an acceptable confidentiality agreement and must be intended to further good faith discussions about resolving the differences between us.
If you seek information for the purpose of informal discovery intended to benefit IBM in the pending litigation, or for the purpose of devising your own litigation plans against SCO related to Linux, we must respectfully decline your request. Therefore, please clarify in writing the purpose for your request. Thank you.
Chief Financial Officer
The SCO Group, Inc.
 Red Hat states in the revised disclosure that it is "vulnerable to claims that [its] products infringe third-party intellectual property rights particularly because [its] products are comprised of distinct software components many of which are developed by independent parties." The revised risk disclosure continues: "[M]uch of the code in [Red Hat's] products is developed by independent parties over whom we exercise no supervision or control ... [and Red Hat's] lack of access to unpublished software patent applications, copyright registrations which fail to adequately disclose source code, and numerous issued software patents that are of dubious validity ... Claims of infringement could require us to seek to obtain licenses from third parties in order to continue offering our products, to reengineer our products, or to discontinue the sale of our products in the event reengineering could not be accomplished on a timely basis."
August 4, 2003
Matthew J. Szulik
RED HAT, INC.
1801 Varsity Drive
Raleigh, NC 27606
Attached is the letter I discussed with you during our July 31, 2003 telephone conversation. Instead of actually sending the letter, I thought it was best to telephone you and speak in person to see if we could resolve the issues between our companies short of litigation. We left the conversation with a preliminary agreement to meet and continue our discussions further.
To my surprise, I just discovered that your company filed legal action against The SCO Group earlier today. You, of course, mentioned nothing of this during our telephone conversation. I am disappointed that you were not more forthcoming about your intentions. I am also disappointed that you have chosen litigation rather than good faith discussions with SCO about the problems inherent in Linux.
Of course, we will prepare our legal response as required by your complaint. Be advised that our response will likely include counterclaims for copyright infringement and conspiracy.
I must say that your decision to file legal action does not seem conducive to the long-term survivability of Linux.
Darl C. McBride
President & CEO