The SCO Open Source Litigation Saga – the Community Fights Back

December 13, 2007

SCO Group, Inc. (SCO) is a US corporation primarily known for the development and distribution of products based on the UNIX System V (UNIX SVRx) operating systems.  By 2003 the open source operating system Linux had become a serious competitor to UNIX and, in an apparent attempt to derive revenue from Linux users and, ultimately, to destroy Linux, SCO embarked on a series of lawsuits in US courts.


The lawsuits began in March 2003 when SCO sued IBM. SCO claimed that IBM had contributed elements from the UNIX SVRx source code into Linux.  Red Hat, a well known and successful distributor of Linux, responded to this attack on Linux with a claim against SCO.  SCO then brought actions against DaimlerChrysler and AutoZone in an attempt to pressurise Linux users.  Novell joined the fray when it publicly claimed that it was actually the owner of the UNIX SVRx intellectual property, rather than SCO.  SCO then sued Novell.


For a time this barrage of litigation raised legal and commercial uncertainties over the viability of Linux as an enterprise computing platform.


The Origins of the Litigation


In 2002 the business of SCO (known at the time as Caldera) was dominated by its Unix products. It was also a modest Linux distributor.   SCO took an aggressive stance towards the Linux community in August 2002, with its release of UnitedLinux.  Darl McBride, the SCO CEO stated “There’s increased demand from vendors who want more than a single distribution of Linux. Red Hat is one—who will be the other?” The Linux community was antagonised, as they saw it as downplaying the importance of existing competitors to Red Hat, and an attempt by a UNIX vendor to divide the Linux community.


In January 2003 SCO announced the SCOsource initiative which aimed to “manage the substantial UNIX intellectual property assets owned by SCO”.  SCO also announced the retention of experienced technology lawyer David Boies to “research and advise” them on their UNIX IP.   In March 2003 SCO commenced proceedings against IBM, alleging that IBM had contributed UNIX IP into Linux in contravention of licence terms.[1] 


The Lawsuits Commence – SCO v IBM


SCO’s motives behind the lawsuit are clear from its initial complaint.  Linux was emerging as a serious competitor to UNIX in the enterprise operating systems market – and IBM was at the forefront of Linux development.  Prior to IBM’s involvement in Linux, SCO regarded it as a “free UNIX-like operating system to be used by developers and computer hobbyists”[2].  The complaint alleges that the only way Linux could have become a competitor to UNIX was through “the misappropriation of UNIX code, methods or concepts…and coordination by a larger developer, such as IBM”.[3]


In particular, SCO claimed that IBM had contributed UNIX source code to Linux in breach of IBM’s UNIX licences with Unix Systems Labs (a subsidiary of AT&T) and the copyrights that SCO claimed to hold in UNIX SVRx.  SCO claimed that the code contributed by IBM to Linux had then been distributed under GNU’s General Public Licence (GPL).  Amongst SCO’s claims were breach of UNIX licence agreements, unfair competition, disclosing trade secrets and breach of copyright. 


In May 2003 SCO announced its intention to cease its own distribution of Linux and warned that “Linux is an unauthorised distribution of UNIX”.  SCO stated that commercial Linux end-users faced liability for their continued use of Linux, and threatened to revoke IBM’s AIX license, one of the original licences that IBM concluded with AT&T over the UNIX IP. 


Shortly afterwards in July 2003, SCO announced that it would be happy to waive its claims against end-users of Linux and to licence the sections of Linux that were allegedly part of UNIX for a licence fee of $699 per processor, and that it would be contacting end-users of Linux directly to offer these licences.


The Linux Community Responds – Red Hat v SCO


A number of the end-users were contacted and were informed by SCO that Linux is an “unauthorised derivative” of UNIX. Many of these were the customers of Red Hat.  SCO even contacted Red Hat itself offering a UNIX license.  In response, Red Hat sued SCO in August 2003.


Red Hat alleged that SCO was attempting to harm the market for Red Hat’s Linux distribution through creating “an atmosphere of fear, uncertainty and doubt about Linux”[4] and sought damages and a permanent injunction against SCO’s behaviour.


In April 2004, the judge stayed the Red Hat v SCO case pending the outcome of the SCO v IBM litigation.  However this lawsuit was an interesting show of strength by the Linux community.


SCO v the GNU GPL – SCO’s Ideological Position


SCO’s claims in the IBM case centred on the accusation that IBM had contributed copyrighted UNIX code into Linux.  During the course of the IBM litigation Darl McBride published a number of open letters on SCO’s Web site setting out ideological objections to open source software, and claiming that the General Public Licence was illegal and void.


These letters included an ‘Open Letter on Copyrights’, published in December 2003.[5] Darl McBride claimed that the GPL was contrary to US copyright law and the US constitution, which “inherently includes a profit motive”.  He stated:


“the issue is clear: do you support copyrights and ownership of intellectual property as envisioned by our elected officials in Congress and the European Union, or do you support “free” – as in free from ownership – intellectual property envisioned by the Free Software Foundation, Red Hat and others? There really is no middle ground. The future of the global economy hangs in the balance.”


SCO introduced these claims into its action against IBM.  In October 2003 SCO amended its claims to allege that “The GPL violates the US Constitution, together with copyright, antitrust and export control laws”.  However in April 2004 SCO quietly dropped the claims.


SCO attacks UNIX licensees – SCO v DaimlerChrysler


DaimlerChrysler had licensed UNIX from AT&T.  In December 2003 SCO sent letters out to a number of UNIX licensees requiring them to certify their continuing compliance with the terms of their licences, with a period of 30 days to respond to the request.  The request for compliance required licensees to certify, among other things, that UNIX code had not been contributed to Linux or distributed under the GPL by the licensees.


DaimlerChrysler initially failed to respond to the letter. SCO sued for breach of contract simply on the basis of the lack of response to the letter. In response, DaimlerChrysler wrote to SCO certifying that DaimlerChrysler had complied with the licence agreement and in fact had not used UNIX for a number of years.


DaimlerChrysler applied for summary judgment, and this was partially granted following SCO’s failure to provide evidence. The case remained open only on the question of whether DaimlerChrysler had been in breach of contract in failing to respond to the request for certification in a timely manner.


SCO also attacks Linux Users Directly – SCO v AutoZone


On the same day that SCO sued DaimlerChrysler, SCO also filed suit against AutoZone, a Linux user, for copyright infringement.


SCO’s complaint contained a list of copyright material allegedly owned by SCO that was contained in the version of Linux that AutoZone was running, but little more detail as to the nature of the copyright infringement.  It also evidences SCO’s fear that “according to leaders within the Linux community, Linux is not just a “clone”, but is intended to displace UNIX System V”.[6]


AutoZone was chosen by SCO for this legal action as AutoZone had switched from SCO’s UNIX products to Linux with assistance from IBM.  SCO alleged that:


“AutoZone’s new Linux based software implemented by IBM features SCO’s shared libraries which had been stripped out of SCO’s UNIX based OpenServer by IBM and embedded inside AutoZone’s Linux implementation”.[7]


Jim Greer, a former senior technical advisor at AutoZone, responded in a letter that he personally initiated AutoZone’s transition to Linux and that “no SCO libraries were involved in the porting activity”.


The AutoZone case was stayed pending the outcome of SCO v IBM, Red Hat v SCO and SCO v Novell (see below).


The Continuing Saga – Evidential Issues in SCO v IBM


In December 2003, the judge in SCO v IBM had ordered SCO to “identify and state with specificity the source code(s) that SCO is claiming forms the basis of their action against IBM”.  During 2003, SCO had made widely publicised statements claiming that UNIX code had been copied into Linux. Despite the December 2003 court order and a further order in March 2004, SCO did not supply copies of the relevant source code, on the grounds that it needed more information from IBM on its contributions to Linux.  In February 2005 the judge criticised SCO for “the vast disparity between SCO’s public accusations and its actual evidence – or lack thereof – and the resulting temptation to grant IBM’s motion [for summary judgment]”.


IBM complained that it was “left to guess” SCO’s claims, and applied to the court to have substantial parts of SCO’s claim struck out for lack of specificity.  SCO claimed that “it should be remembered that it is IBM, not SCO, that made those contributions” and thus IBM should be able to determine the alleged misappropriated code.  In June 2006 the court ruled on IBM’s motion to strike out SCO’s claims.  The judge was once again highly critical of SCO – he stated that “SCO’s arguments are akin to SCO telling IBM sorry we are not going to tell you what you did wrong because you already know”.  The judge found that SCO had wilfully disobeyed the December 2003 and later court orders demanding disclosure, and that this had prejudiced IBM.  The judge struck out 186 of SCO’s 294 claims over misused UNIX IP.[8]  The judge did not rule on the merit of the remaining claims – the issue was simply whether the evidence to support them passed the test of specificity.


The Tide Turns Against SCO – SCO v Novell


SCO had based its claims in all of these legal actions on the assertion that SCO was AT&T’s successor in title both as a licensor of UNIX licences and as a holder of the IP in UNIX SVRx.  UNIX was developed by UNIX System Labs (USL), a subsidiary of AT&T  and in 1993 all rights in UNIX were assigned to Novell.  SCO asserted that all UNIX IP and SVRx licences were then assigned from Novell to The Santa Cruz Operation, Inc., through an Asset Purchase Agreement (the APA) in September 1995.  In 2001, Santa Cruz sold its UNIX business to Caldera Systems Inc, the predecessor to SCO.  It is on this basis that SCO claimed to be the holder of UNIX copyright and a UNIX licensor.


However, in May 2003 Novell publicly announced that it had not in fact transferred the UNIX copyrights to Santa Cruz under the APA.  For the rest of the year, Novell and SCO continued to publicly dispute the ownership of UNIX copyrights.  In June and July 2003, SCO registered several UNIX copyrights with the US Copyright Office.  Subsequently, in September and October 2003, Novell submitted certifications claiming to be the owner of those copyrights.


In reaction to this SCO sued Novell in January 2004 for slander of title. During the lawsuit Novell pointed out that the APA transferred all UNIX assets of Novell’s UNIX business, but “all copyrights and trademarks, except for the trademarks UNIX and UnixWare” were expressly excluded from the transfer.  Novell stated that the reasoning behind this was protection in the event of Santa Cruz’s bankruptcy.


SCO based its claims on an amendment to the APA, known as Amendment No. 2, which was executed by Novell and Santa Cruz in October 1996, around a year after the execution of the original APA.  This amendment modified the exclusion provisions of the original APA to exclude from the transfer:


“All copyrights and trademarks, except for the copyrights and trademarks owned by Novell as of the date of the Asset Purchase Agreement required for SCO to exercise its rights with respect to the acquisition of UNIX and UnixWare technologies”


The amendment did not specify which copyrights were required for Santa Cruz to exercise its rights.  Furthermore, the amendment to the APA was not drafted to be retroactive.  In addition, under US law, following the amendment the transfer of copyright would have had to have been undertaken by a bill of sale.  This did not take place.


Novell’s contentions were given further weight by e-mails from Darl McBride to Novell during February 2003 insisting that Novell amend the APA to give SCO “the copyrights to UNIX”, and a telephone call from McBride asking Novell to “give him some changes so he could have the copyrights”.


In a summary judgment ruling on 10th August 2007, Judge Kimball ruled that Novell is the owner of the UNIX copyrights, and that Novell was entitled under the APA to waive SCO’s claims of breach of licence agreement against IBM, and SCO was obliged to recognise that waiver.[9]   This ruling effectively undermined SCO’s claims in SCO v IBM, Red Hat v SCO, SCO v DaimlerChrysler and SCO v AutoZone, as well as effectively putting an end to the SCO v Novell case. 


The ruling has the effect that it is now Novell’s choice as to whether to continue with SCO’s claims.  Novell has made it clear that it will not do so, stating shortly after the ruling in August 2007 “we don’t believe there is Unix in Linux”.


Appeals and SCO’s bankruptcy


SCO attempted an emergency appeal of the issues in the SCO v Novell summary judgment but this was denied, with the judge stating that SCO would have to wait until the resolution of all issues in the case as a result of a trial on 17 September 2007.


On 14 September 2007, SCO filed for Chapter 11 bankruptcy protection, putting a stay on all legal proceedings, to the glee of the open source community.  Jim Zemlin, executive director of the Linux Foundation, stated “If they had built their business on Linux instead of trying to attack it, they might be enjoying success like Red Hat instead of filing for bankruptcy protection”.[10]


On 27 November 2007 Novell won a motion to lift the automatic stay on proceedings in SCO v Novell.  The trial will now proceed on two issues – the amount of UNIX SVRx royalties Novell is entitled to claim from SCO and whether SCO had the authority to enter into new SVRx licences.


At the time of writing there is uncertainty as to whether SCO will appeal the SCO v Novell summary judgment.  The answer will become clear as the restructuring plans that will take place as part of SCO’s bankruptcy become clear.  SCO has proposed selling its UNIX assets to investment firm York Capital Management, although this has not been approved by the court.


The Future for Linux


Against the odds, the outcome of the SCO litigation has reinforced the robustness and the importance of Linux in the enterprise computing market.  In addition, it has demonstrated the strength of the Linux community and end-users when faced with legal challenges to Linux, which is likely to enhance the wider adoption of open source software in the enterprise market.


Roger Bickerstaff is a Partner at Bird & Bird and SCL Trustee. Nick Boydell is a trainee in the commercial department at  Bird & Bird:

[1] SCO’s initial complaint in The SCO Group v International Business Machines Corporation, 6/3/2003

[2] SCO’s initial complaint in The SCO Group v International Business Machines Corporation, para. 74

[3] SCO’s initial complaint in The SCO Group v International Business Machines Corporation, para. 86

[4] Red Hat’s initial complaint in Red Hat, Inc. v The SCO Group, Inc., 4/8/2003, para. 2

[5] Darl McBride, Open Letter on Copyrights, 4 December 2003

[6] SCO’s initial complaint in The SCO Group, Inc v AutoZone, Inc, 3/3/2004, para. 13

[7] The SCO Group, Inc v International Business Machines Corporation, Plaintiff’s Revised Supplemental Response to Defendant’s First and Second Set of Interrogatories, p51

[8] The SCO Group, Inc v International Business Machines Corporation, Order Granting in Part IBM’s Motion to Limit SCO’s Claims, 28/6/2006

[9] The SCO Group, Inc v Novell, Inc, Memorandum Decision and Order, 10/8/2007, p100

[10]SCO Group files for bankruptcy protection’, CNET 14/9/2007,