Litigation Casts A Shadow Over Linux: Will Uncertainty Slow Adoption?

A billion dollar lawsuit that alleges IBM's use of UNIX, and its Linux play, is a misappropriation of a Utah-based company's software, has garnered the attention of Wall Street firms, which are quietly watching the fight over computing code.

IBM has vigorously denounced the suit, launched by Caldera Systems Inc., which operates as The SCO Group. IBM denies it has breached any contractual obligations or interfered with The SCO Group's contracts and says it has a perpetual right to use the software it is accused of misappropriating.

While few say the tort tangle will derail the adoption of Linux by Wall Street firms, observers say the uncertainty around it has the potential to slow down the rate at which firms will roll out their Linux solutions. As well, there is a threat that the lawsuit could spread and hit other large technology companies and even their customers who are deploying Linux.

"It certainly is an interesting situation," Richard Rzasa, CIO of TD Waterhouse in New York, says of the litigation. "Linux has been demonstrated to be a viable operating system for the enterprise." Given that CIOs are focused on return on investment and doing more with less, Linux "is an attractive alternative to UNIX processors, while maintaining the reliability and manageability of the environment."

Rzasa says, "I believe that firms committed to Linux will keep moving forward, and others who are considering Linux will also keep it in the mix."

That's because, "From what has been made public, there is not yet enough specificity in SCO's claim to render a strong opinion, although they have begun to exhibit some of the disputed code to industry analysts," says Rzasa.

Also, he says, there's a belief in the industry that IBM, and possibly other firms, will either settle or buy SCO, which trades on the Nasdaq and has seen its market capitalization soar tenfold, from around $10 million to more than $100 million, since filing suit.

One CIO, who spoke on the condition of anonymity, says, "I don't think anyone has enough information to make a decision about Linux going forward and whether you're going to be liable for it."

The source says he has some small Linux deployments for "minor services," such as running the corporate Web site. "I think, to some degree, the lawsuit seems like a lot of hot air. (But) from the standpoint of a CIO, how do you know for sure? The uncertainty around it could slow the growth of Linux."

SCO spokesman Blake Stowell says the purpose of the lawsuit is to "protect our source code. We would like them to stop misappropriating our software." As for the shot across the bow of corporate America, he says, SCO asked the companies to "seek opinions of legal counsel to see if they should continue to use or implement Linux. We're not going to tell you what to do."

As for Linux and the benefits people tout about he operating system, he says, "I would say that if the promise of Linux is too good to be true, then it probably is."

IBM spokeswoman Trink Guarino says, so far, "We haven't seen the Linux momentum slow in the market at all. We're not going to try this case in the press. We're going to defend this vigorously in court."

Experts says it's a critical lawsuit for IBM, which has staked its future on open source and Linux.

The Suit

In its complaint, SCO sets out the history to the growth of the UNIX platform, which started at AT&T Bell Laboratories. It was later licensed to various companies, such as IBM, Sun Microsystems and Hewlett-Packard, which created their own UNIX "flavors."

SCO claims, in 1992, Novell, Inc. acquired the right to all UNIX software code from AT&T in a $750 million stock deal, and it re-branded UNIX as UnixWare.

SCO later acquired those UNIX assets from Novell. SCO now claims that it is the present owner of all software code and licensing rights to UnixWare System V technology, which it says is the foundation for all commercial UNIX flavors in use today.

Moreover, SCO argues that it saw early on that Intel chips would gradually gain acceptance for use in the enterprise market, and while other UNIX vendors were building computing platforms with more expensive and sophisticated chips, it built SCO OpenServer using the cheaper Intel chips, giving it a leg up on competitors when the market shifted.

It claims that, "as Intel's prominence grew in the enterprise computing market, SCO's early version of UNIX also grew into the operating system of choice for enterprise customers who wanted an Intel-based computing solution for a high volume of repetitive, simple, computing transactions."

SCO says as it sought to expand market share, it was approached by IBM to jointly develop a 64-bit UNIX operating system for Intel-based processing platforms in a project known as Monterey. Prior to that project, it says IBM was relying on its Power PC chip.

SCO claims that by May 2001, that project was substantially complete, when IBM informed SCO that it was "dead," and SCO now claims that IBM appropriated that proprietary information for its own use, a charge IBM denies.

The suit alleges that prior to IBM's involvement, Linux was like a "bicycle" and Unix was a "luxury car." To hoist Linux to the same level requires a redesign that is "not technologically feasible or even possible at the enterprise level without (1) a high degree of co-ordination; (2) access to expensive design and testing equipment; (3) access to UNIX code, methods and concepts; (4) UNIX architectural experience; and (5) a very significant financial investment."

That's where IBM comes in. The suit goes on at length citing comments from IBM executives about the company's commitment to Linux, including its intention to open source certain aspects of AIX, IBM's UNIX platform, as part of the bid to grow Linux. SCO claims that IBM is not in a position to legally do that, because AIX "contains SCO's confidential and proprietary UNIX operating system, and, more importantly, the code that is essential for running mission-critical applications ... " It says IBM is trying to destroy the value of UNIX in the marketplace, to the detriment of competitors.

He said, she said

Bill Claybrook, a former computer programmer and now an analyst at Aberdeen Group, Inc. in Boston, says there was no question he was looking at "identical pieces of code. It is unlikely coded comments could be identical by pure chance." The problem, he says, is "I don't know where the code came from." He says the question that developers are debating is, if it was copied, who copied whom? "It's going to be a hard thing to prove." Most programmers, he says, side with IBM and "don't believe IBM did anything wrong."

He notes SCO has since stopped distributing its Linux solution. "SCO doesn't care about Linux." The problem, he says, is the uncertainty that a lawsuit brings and the fact that it will "drag on." Drag it on long enough, he says, and the "Linux market could be destroyed." That's because firms like to see a road map when it comes to developing code.

IBM, he says, has bet heavily on Linux and it would "be a big blow to them" if the suit had legs.

Victor Raisys, an analyst at investment firm Soundview Technology Group, a market maker for Linux firm Red Hat, says, "The lawsuit represents more than just a licensing squabble between two companies or the efforts of a small UNIX/Linux company to dig into the deep pockets of IBM."

He says Linux customers will "be forced to consider their legal liability due to intellectual property issues around Linux and open-source software." Raisys says Linux clients are "struck with a lot of uncertainty" and he expects "some firms will put them (Linux deployments) on hold until they get better clarity."

While some commentators argue the simplest solution would be for IBM to buy SCO, Raisys says that's easier said than done. Given that the lawsuit claims more than $1 billion in damages, it's unlikely the shareholders would cough up their shares at the current market cap. "You won't see this thing settled for quite a while."

As for Rzasa, he says he plans to continue his Linux pursuit. "I am considering the use of Linux for an initiative at TD Waterhouse and will continue to do so until more information about SCO's claim becomes available. I believe (Linux) will be an effective tool in lowering the TCO (Total Cost of Ownership) of technology."