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28 August 2009, 16:17

SCO vs. Linux: The story so far

SCO / Linux mixed logo

Six years ago the open source movement faced the possibility that the long term future of Linux might be seriously threatened when the SCO Group decided to sue IBM over alleged Linux kernel copyright infringement

Note: Skip to the end of this article for a list of stories The H has published about the SCO Group court cases

Back in 2003, on March the 6th, the SCO Group filed a $1 billion US suit (later increased to $5 billion) against IBM for allegedly “devaluing” the SCO Group version of the Unix operating system. SCO alleged that IBM had without authorisation incorporated copyright code from SCO Unix into Linux kernel code.

Those in the free and open source movement of course saw this as an attack on open source and a potential body blow for Linux. IBM joined by Red Hat, filed a counter suit against the SCO Group, while the SCO Group sent letters to various companies warning them of copyright violations and attempted to extract license fees from Linux users. By these actions and through various connected statements the SCO Group implied that it owned the copyrights to the original AT&T UNIX code and its derivatives, having acquired these rights through a 1995 Asset Purchase Agreement from Novell. (The original agreement was between Novell and the Santa Cruz Operation. In 2000 Caldera acquired UnixWare from the Santa Cruz Operation, later Caldera changed its name to the SCO Group.)

In May of 2003 Novell joined the fray and really upset the apple cart by publicly claiming that it had never sold copyrights to SCO, merely a license, and that Novell still retained ownership of all copyrights and patents relating to Unix which were then in question. This issue is of some concern to Novell because it now has a substantial investment in Linux technology and bases a large part of its business on Linux associated services.

In January of 2004 the SCO Group filed suit against Novell for Slander of Title. Initially this case was dismissed and in July of 2005 Novell filed a counter claim against SCO for, among other things, unpaid royalties. Novell accused SCO of having accepted licence payments against its Linux IP Infringement Licensing Plan from both Microsoft and Sun Microsystems without remitting them to Novell. SCO had first proposed this licensing plan to Novell as a direct participant and following Novell's refusal to take part in the scheme had then demanded that Novell relinquish any copyrights to SCO.

Over the course of the next year or so Novell and SCO batted the issue back and forth with various claims and counter claims, until in August of 2007 Judge Dale Kimball ruled that Novell owned the UNIX and UnixWare copyrights. At which point Novell stated that they waived any possible claims against IBM and said they had no interest in suing anyone over Unix copyrights or patents. Novell even went so far as to say they did not believe there was any Unix code in Linux.

Following ruling for Novell, in September of 2007 Judge Kimball closed the case of SCO vs. IBM due to SCO filing for bankruptcy. This left the case on hold until SCO either emerged from Chapter 11 or was sold off. In October SCO announced a $36 million buy out deal with York Capital Management, but after the US Trustee, Novell and IBM objected the deal was withdrawn.

In February of 2008 SCO made the announcement that through a comprehensive re-organisation it would be able to emerge from Chapter 11. This was mainly thanks to a proposed injection of finance amounting to $100 million by an investment group led by Steve Norris Capital Partners (SNCP) and some unnamed lenders from the Near East which would enable the company to resume trading, "including seeing its legal claims through to their full conclusion". At the time it was said Norris and partners were betting there was a good chance that SCO could win its cases against Novell, IBM and Red Hat. Two months later this proposed deal was abandoned.

With SCO apparently back in operation, Novell's strategy in May 2008 was to press for payment of the $19.9 million in royalties they claimed they were owed from SCO dealings with Microsoft and Sun Microsystems. SCO responded by claiming that those deals did not involve Unix System V and were not subject to royalty payments. In November of 2008 Judge Kimball closed the SCO case against Novell, ruling that Novell did not sell copyrights to SCO and that royalties were due to Novell. This meant Novell was the SCO Groups major creditor. In March of 2009 SCO filed an appeal against the 2008 ruling that it did not buy the copyright to Unix from Novell.

In January of 2009, SCO finally filed a promised new re-organisation plan with the bankruptcy court, but in May 2009 the US Trustee's Office official responsible for SCO applied to have the company's Chapter 11 protection from creditors removed, stating that there was no reasonable prospect that the SCO Group could be "rehabilitated" to the extent that a sound, debt-free business could be re-established. At this point it really did seem like the sequence of court battles had run their course and it was finally the beginning of the end for the SCO Group.

Immediately before the liquidation hearing in June 2009, Darl McBride, CEO of SCO, announced plans to re-fund the company through a deal with Gulf Capital Partners. Caught out by the surprise development, all parties agreed to postpone the liquidation hearing until the 16th or the 27th of July. It later emerged that SCO planned to sell its software business to a new company to be named unXis, while the SCO Group remained as a shell company to carry on the litigation against Novell, IBM, Red Hat and others.

In July of 2009 both IBM and Novell lodged objections to the SCO sale with the bankruptcy court, with the IBM lawyers introducing evidence that Darl MacBride had, via intermediary Mark Robbins, made a personal payment of $100,000 to Steven Norris to enable him, together with a group of investors, to continue to express an interest in SCO's litigation business. Despite various bickering about whether or not the SCO payment to Norris was legal and whether or not McBride's assessment of the company's future viability if it were allowed to continue was realistic or not, later in July a final bankruptcy hearing was held.

In August of 2009 Judge Kevin Gross directed the Office of the United States Trustee to appoint a Chapter 11 Trustee for the SCO Group. The Trustee is directed if possible to guide the company out of Chapter 11. The SCO board has been removed from control of the company. Amazingly it is the opinion of Judge Gross that the future of the company, if any, lies in pursuing the litigation against Novell, IBM, Red Hat and others. Gross therefore denied the motions of Novell, IBM and the US Trustee to liquidate the SCO Group as he said Novell and IBM's motivation was simply to remove a legal opponent. He also said in his memorandum that the flourishing Unix business that SCO took over from Novell in 1995 was destroyed by IBM's actions in revealing restricted information it had gained from its Unix licences with SCO.

To date The H has published more than 20 stories on the on-going SCO Group soap opera saga. To follow the story in its recent details please look at the links below:

Update: Edward Cahn, the SCO Group's Chapter 11 trustee appointed by the bankruptcy court, on Friday (16th October) dismissed former SCO boss Darl McBride. The elimination of the positions of President and CEO was given as the reason for McBride's dismissal.

Update 2: SCO's majority owner Ralph Yarro wants to inject a loan of $2 million into the financially stricken company, allowing the jury trial set for the 8th of March, against Novell over Unix copyrights, to go ahead.

Update 3: The loan from Yarro has been approved providing SCO the funds to proceed with the jury trial against Novell. Repayment on the loan is contingent on SCO winning the case. The trial is currently in progress.

Update 4: On the stand at the new jury trial former Sun CEO Darl McBride confirmed that Sun did not need the debated copyrights for its development work but did consider them vital for its licensing business and a pre-requisite for the sale of its antidote licenses. Guy Pisano, an expert commissioned by Sun admitted that he did not check the methodology of the market study he used for his calculation of damages for Sun allegedly caused by Novell's announcement it would protect its customers against Sun claims.

Update 5: The jury decided at the end of March 2010 that the copyrights to Unix were not transferred when Novell sold its Unix business to the SCO Group in 1995. SCO appealed this decision on the grounds that the jury had misunderstood the issues and had made a wrong decision. Judge Ted Stewart has now made a final ruling that the copyrights are owned by Novell. It seems the long trail of litigation really has come to an end.

Update 6: In August 2012, SCO successor The SCO Group (TSG) applied to discontinue its reorganisation according to Chapter 11 and go into liquidation. Under Chapter 7, all payments will be suspended while awaiting the last pending decision in the dispute with IBM.

Update 7: In June 2013, the US District of Utah re-opened the SCO v IBM court case. The case was resurrected because SCO's motion to re-open the case was wrongly denied.

In 2008

In 2009

In 2010

In 2011

In 2012

In 2013

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