Showdown With The Linux Gang

One Company's Lawsuits Challenge Open-Source Code

By Jonathan Krim, Staff Writer
The Washington Post

June 10, 2004

LINDON, Utah -- For a small but fervent cadre of computer enthusiasts, the most popular Internet parlor activity over the past year hasn't involved animated dungeons, dragons or warlords.

Instead, it is real-life sleuthing to piece together a business puzzle: How can a tiny, struggling software company based here at the foot of the Wasatch Mountains afford to pursue a legal donnybrook with some of the biggest names in corporate America?

SCO Group Inc. is suing companies such as International Business Machines Corp., Novell Inc., DaimlerChrysler and AutoZone Inc. -- and threatening government agencies and more than 1,500 other firms -- over their use of software called Linux.

Darl McBride, chief executive of SCO Group, says Linux users have rustled his company's Unix software code. (Tom Smart For The Washington Post)

Many big companies and organizations have embraced Linux in recent years because of its chief virtue: It's free. Developed and maintained by a loose confederation of engineers, Linux is available to anyone and can be modified by users, challenging the traditional model of software controlled and licensed to others by a single entity such as Microsoft Corp.

SCO claims that pieces of code from another operating system that it owns found its way into Linux, and the company is demanding a licensing fee of $700 for every computer server running the software.

In the process, SCO has become one of the most hated companies in the country, and it has sparked a vitriolic war over the future of software. Linux advocates regard SCO as part of a broader campaign to snuff out the software, known by its smiling penguin logo.

"There are some vested interests, Microsoft among them, to whom the whole concept of Internet collaboration is a threat," said Eric S. Raymond, a technology book author who was one of the first to take up the fight against SCO more than a year ago.

Working largely on their own time, Linux devotees apply their collaborative model for creating software, known as open source, to attack SCO and its case. Dozens of online detectives comb corporate documents, analyze legal filings and publish everything they can find about the company, its finances, management and connections to Microsoft.

One Web site focused exclusively on the case, known as Groklaw, was started by a paralegal named Pamela Jones and now has roughly 5,000 contributors. Though it is ardently pro-Linux, the site has grown into such an exhaustive archive of software history and law that attorneys on both sides use it as a resource.

"Our international membership means SCO can't do anything anywhere on the planet without someone seeing it and telling on them," Jones said in an e-mail interview.

Redmond Shadow

The strongest evidence pointing to possible Microsoft encouragement in the SCO campaign is this: Early last year, Microsoft agreed it would pay SCO an eyebrow-raising sum, as much as $16 million, to license its technology, according to filings with the Securities and Exchange Commission. Later, Microsoft executives brought SCO to the attention of a venture fund, BayStar Capital, which ended up putting together investments in SCO totaling $50 million.

Microsoft spokesman Mark Martin said the company's sole involvement with SCO was the license. He said it was needed because Windows makes use of some code from software known as Unix, a version of which is owned by SCO. Sun Microsystems also purchased a license from SCO.

The cash infusions allowed SCO to hire one of the nation's most prominent and expensive litigators, David Boies, to press its claims. In one of the case's many odd twists, it was Boies who tormented Microsoft when he served on the Justice Department's legal team in its antitrust prosecution of the company in the late 1990s. To retain his services, Boies's firm received a $10 million cut of the $50 million investment SCO received, as well as 400,000 shares of SCO stock, which could soar in value if the company prevails.

Most troubling to companies, governments and other potential Linux users is that SCO is going after them instead of the companies that provided them with the software. Generally, they get Linux from distributors such as IBM and Novell or Red Hat Inc., which make money by selling installation and support and packaging other services to go with it.

"Companies like DaimlerChrysler and AutoZone have been dragged into this as pawns in a bigger fight . . . and that is not logical," said Daniel Egger, who heads Open Source Risk Management, which he hopes will offer insurance to companies worried about copyright infringement with open-source software. "They didn't write it. They are just end users running it."

Linux backers call this tactic the spreading of "FUD," tech-speak for fear, uncertainty and doubt, to turn the marketplace against open-source software.

Tensions are so high that people on both sides claim they have received threats to their safety. Groklaw's Jones said she closely guards her privacy and base of operations after a menacing note appeared on an Internet message board.

SCO chief executive Darl McBride said he now sometimes carries a handgun, and his wife sometimes gets threatening calls when he is away on business. On Super Bowl Sunday this year, SCO's Web site was temporarily shut down by a virus aimed at the company.

"This case is a tinderbox," said Laura DiDio, a software analyst at the Yankee Group research firm, who said that some "Linux loonies" have harassed her over her research reports on the lawsuits, which generally have favored SCO's legal position. "IBM is using Novell, and Microsoft and Sun are using SCO to fight their battles for them."

Linux leaders deplore harassment as the work of an errant few, but they have no reservations about their desire to revolutionize the fundamentals of the software industry.

They believe that open-source collaboration yields better software, because more minds are put to the task. And they argue that operating-system software is now so essential to the economy that it should be a basic commodity that is cheap, or free, so that users can better spend their resources tailoring it to fit their needs and using it to expand their businesses.

"When that happens, some people lose, but everyone else wins, because things getting cheaper raises the general wealth level and raises productivity," said Raymond, the author.

Disputing the Benefits

McBride calls these arguments tantamount to a death sentence for a multibillion-dollar software industry that has helped propel the United States to economic and technological leadership in the digital era.

In March, he sent a letter to every member of Congress warning that Linux threatens the country's economic well-being and even its national security.

"Each Open Source installation displaces or pre-empts a sale of proprietary, licensable and copyright-protected software," he said in his letter. "This means fewer jobs, less software revenue and reduced incentives for software companies to innovate."

If open-source advocates want to give away their wares, McBride said, they can do so. But he insists they cannot take code from SCO-owned Unix, put it into Linux and distribute it for free.

He sometimes describes the company's predicament in the down-to-earth language of the cattle business in which he was raised.

"We went out one day and our Unix cows were missing," McBride said he told his father in trying to explain the case to him. "We looked in the Linux pen, and there's a bunch of them in there that have our brand on them . . . in this case the copyright. Someone took our cows and we want 'em back -- it's as simple as that."

SCO officials acknowledge that the firm, formerly known as Caldera, was likely going out of business before pursuing its Linux licensing program. The company purchased rights to Unix code from Novell and sells it to some companies, but McBride said that business cannot compete with Linux's free distribution model.

For its part, Microsoft has been on the offensive against Linux for years, often labeling it one of the company's greatest competitive threats. Calling it "viral" and a "cancer," officials have lobbied the Pentagon, other agencies and foreign governments not to use it, while stepping up efforts to win business customers by being more flexible in Windows licensing negotiations.

More recently, the firm's public rhetoric has moderated.

"Developers should be free to use whatever license they choose," Martin said. "But Microsoft wants people to be aware of the benefits and drawbacks."

Last month, however, a think tank heavily funded by Microsoft, the Alexis de Tocqueville Institution, issued a lengthy study questioning whether developers of Linux, including patriarch Linus Torvalds, appropriated substantial amounts of code from other systems.

Torvalds denies the charge, as do developers quoted in the study who say its author distorted their views. But Torvalds recently told Linux developers that when they add features or refinements to the software, they should certify that the code was not improperly copied.

Even the most hardened Linux advocates, including Torvalds, doubt that Microsoft inspired SCO to bring its lawsuits. But they contend the software giant knows how to exploit a golden opportunity when it sees one.

For them, news of the $50 million investments in SCO had the whiff of a smoking gun. Why would a Northern California venture capital firm, BayStar Capital, and the Royal Bank of Canada sink a combined $50 million into a company that acknowledged that Linux was so overwhelming its Unix business that its only hope of survival was its lawsuits?

It was then that one of the online gumshoes scored his biggest coup: Raymond was leaked a memo from an SCO consultant suggesting that Microsoft was behind those investments, and more.

"Microsoft will have brought in $86 million for us including BayStar," wrote Michael Anderer to SCO Vice President Christopher Sontag in an e-mail dated Oct. 12. "Microsoft also indicated there was a lot more money out there and they would clearly rather use BayStar 'like' entities to help us get significantly more money if we want to grow further or do acquisitions."

Responding to the clamor, SCO said the e-mail was authentic, but that Anderer had gotten many details wrong, including Microsoft's involvement. Like Microsoft, McBride said there is no connection between the two beyond the licensing deal.

McBride said he thinks Anderer, who worked with him at a previous company, was trying to inflate the size of deals he brought to the company.

"We hired him as a consultant to help put together some licensing deals with Microsoft, which he did," McBride said. "Consultants have fee arrangements, and . . . the more dollars they can attribute to something they are doing, then obviously the bigger their fee would be."

From his home office, Anderer said he could not discuss the issue because of a nondisclosure agreement with SCO. He said he was disappointed when he heard McBride's response to the memo.

BayStar, meanwhile, said it was introduced to SCO by Microsoft officials.

"I would not have known about the existence of SCO, but for the introduction by Microsoft," BayStar President Lawrence Goldfarb said in an interview.

SCO officials say the introduction was made by a former Microsoft employee, but Goldfarb said he was approached by two current, senior Microsoft executives whom he did not name except to say they were not Chairman Bill Gates or chief executive Steven A. Ballmer.

Goldfarb added that Microsoft's involvement stopped at the introduction, and that Microsoft is not an investor in BayStar.

"We're a pure financial animal," Goldfarb said of the venture capital firm. The terms of the investment deal were attractive, he said, with BayStar purchasing $20 million worth of preferred shares that paid an ongoing dividend. The firm mitigates its risk by shorting the common stock of the company it is investing in.

Goldfarb said BayStar researched SCO's legal claims before investing and believes they have merit, giving the BayStar investment potentially high returns.

He added that he agrees with concerns held by SCO, and Microsoft, that contractual terms for Linux designed to keep it free -- known as the General Public License -- can undermine ownership rights of software that might be used in the same network environment.

'This Sucking Effect'

Under this view, software that is enhanced to work in conjunction with Linux might be labeled a Linux derivative, which the public license then requires to be distributed for free.

"The GPL has this sucking effect of grabbing your IP [intellectual property], sucking it in and destroying your property rights," McBride said.

Torvalds, the Linux founder, ridicules that notion.

"Having a hole in your head has this sucking effect," Torvalds said, firing back at McBride. "The GPL doesn't 'grab' any IP at all. The only thing that is desperately trying to grab other people's IP is Darl McBride and company."

Still, some Linux advocates such as Bruce Perens, former open-source strategist at Hewlett-Packard, say the GPL has some "ambiguities." But Perens argues these are easily resolved. An even bigger assault on Linux looms, he fears, through the assertion of patent rights by big software firms.

If any company were to worry about threats to intellectual property, it would be IBM, which holds more patents than any other firm in the world. But the company has staked a portion of its business on Linux, selling services and add-ons to other companies and institutions.

IBM officials declined to comment on the lawsuit. The company said that it has had no problems working with all types of licenses.

"If you understand and adhere to the terms and conditions, you can work with the software," said IBM spokeswoman Trink Guarino.

In its lawsuit against SCO, Red Hat -- the country's largest Linux distributor -- has asked a judge to declare Linux free of infringed code. Meanwhile, organizations such as the National Retail Foundation have issued statements that, based on their research, SCO's clams are groundless.

As for SCO, it has had a rocky past few weeks. Its stock, which soared when it began its lawsuit campaign, has since dropped dramatically.

More recently, the Royal Bank of Canada dropped out of the picture, selling two-thirds of its stake to BayStar and converting the remaining $10 million into SCO stock, which it can sell on the open market.

Initially, BayStar also sought a refund of its investment, which could have stripped SCO of much of its cash.

"We do not like to be in the public forum," Goldfarb said. "We were not happy with what we thought was a cavalier attitude [by SCO management] . . . in dealing with investor relations and the press. This is an issue of grave importance."

But recently, BayStar said it was satisfied with SCO management.

Copyright 2004