Analysis: Novell Tries to Torpedo SCO Unix IP Claims
By: Steven J. Vaughan-Nichols
Wednesday, May 28, 2003 05:19:22 PM EST
URL: http://www.linuxplanet.com/linuxplanet/reports/4818/1/
Now: Novell Upstages SCO Earnings Call
SCO may not be able to sue IBM for illegally placing UNIX code in Linux after all. For you see, according to Novell CEO Jack Messman, SCO doesn't own UNIX's patents or copyrights in the first place.
In the release Messman said, "SCO continues to say that it owns the UNIX System V patents, yet it must know that it does not. A simple review of U.S. Patent Office records reveals that Novell owns those patents." Further, "the 1995 agreement governing SCO's purchase of UNIX from Novell does not convey to SCO the associated copyrights. We believe it unlikely that SCO can demonstrate that it has any ownership interest whatsoever in those copyrights."
Also this morning, in SCO's 2nd quarter earning call, SCO CEO Darl McBride said that there's no mention of copyright and patents in the IBM lawsuit and that contract issues are really what the IBM lawsuit is about. At the same time, though, he admitted that SCO had been talking with Novell over UNIX IP issues and that SCO's 1995 purchase agreement of UNIX from Novell was 'confusing' on the issue of UNIX's patents and copyrights.
In SCO's press release addressing Novell's comments, SCO doesn't directly address the copyright issue and puts contract issues on center stage. Indeed, Bruce Perens, director of Software in the Public Interest, a non-profit, Open Source development organization, says, "SCO's brief reply to Novell implicitly acknowledges that SCO does not own the UNIX copyright."
That said, though, in the teleconference McBride said that SCO believes that the company does own the UNIX copyrights and that all four of the people who signed the contract-none of whom are still with Novell or SCO-thought at the time that the intent was to transfer copyright. So, "SCO has the absolute right to UNIX's copyright" and we're confident on how a judge will come down."
Gary Schuster, Novell's senior VP of communications responded to this claim by saying, "Maybe SCO will find out in court."
Flash Back: The Novell-Linux-Unix Connection
Ironically, both companies are partly owned by The Canopy Group and their histories are intertwined. Caldera, one of the current SCO's two parent companies, was founded by Ransom Love and Bryan Sparks, former Novell employees who grew frustrated by Novell's refusal to back Linux. They made this move with the blessing and with financial backing of Ray Noorda, who had recently retired as head of Novell.
With Noorda no longer at the helm, the new Novell CEO, Robert Frankenberg, sold the UNIXWare operating system and some rights to the UNIX System V Release 4.2 (SVR4.2) source code to the Santa Cruz Operation, the other parent of today's SCO in October 1995.
In return, Novell got enough SCO stock to give Novell a 17% equity stake in the company and Novell continued to get UNIX intellectual property royalties. At the same time, Novell authorized HP to make a next-generation 64-bit UNIX implementation. Novell made these moves because, on their own, they had been unable to turn a profit from UNIX.
Since then, SCO and Caldera merged and after first supporting the merger of UNIX and Linux, SCO decided to turn against Linux.
Novell also had a change of heart. At their annual Brainshare conference, Novell announced that they would be producing their own Linux and would support NetWare services both on Linux and Netware kernels. According to Schuster, Novell Linux, with the ability to support Netware applications, will be out in about eighteen months.
In addition, Novell is porting their GroupWise client to the Linux desktop and is now supporting open source development at their Novell Forge site.
So it is that SCO, founded in part by former Novell staffers and Linux supporters, is now anti-Linux while Novell, which turned its back on Linux, is now an ardent Linux supporter.
Flash Forward: Novell vs. SCO
"If there could be any doubt about this, Novell CEO's letter of May 28, 2003, shows otherwise. Besides just tackling SCO on its UNIX ownership and potential intellectual property (IP) rights claims, Novell attacked SCO on grounds that sound like those of the most tried and true Linux supporter.
For example, Messman says, "SCO claims it has specific evidence supporting its allegations against the Linux community. It is time to substantiate that claim, or recant the sweeping and unsupported allegation made in your letter. Absent such action, it will be apparent to all that SCO's true intent is to sow fear, uncertainty, and doubt about Linux in order to extort payments from Linux distributors and users."
The proximate cause to Novell's outburst was SCO's May 12 "Letter to Linux Customers." Both CEOs' comments indicate though that the two companies had been talking-and disagreeing-about UNIX IP issues since at least January.
To outside observers, like Dan Kusnetzky, IDC vice president for system software research, Novell's move spells bad news for SCO. "Are we living in a soap opera?! It's getting harder to see how SCO can prove their case against IBM. Can they prove that SCO didn't introduce UNIX code into Linux? Can they prove IBM introduced the code? And, now, do they 'own' any code at all?"
Of course, he continues, this case isn't good for much of anyone. "The only one getting any benefit from this is Microsoft." As for the conspiracy theories that Microsoft is somehow behind SCO's posturing, he thinks that while this "makes for interesting conversation around Starbucks," there's nothing to it.
Bill Claybrook, the Aberdeen Group's research director for Linux and UNIX, thinks that this Novell and SCO's IP claims and counterclaims "could lead to a court case." This is especially true since, from where he sits, these issues would have to be resolved before the IBM case. Still, "you'd think that David Boies," SCO's chief outside attorney, "would have looked at the SCO-Novell contracts."
Claybrook continues that while, up to now, he's been supportive of SCO, "but if SCO has anything to their claims against Linux and IBM they should be getting them out. If they don't have anything, there's just doing this to raise their stock."
He's been reluctant to look at SCO's actions in this way, but lately he's begun to think that, "maybe SCO's leaders, knowing that SCO has only a short-term future, are not looking at building a real company, but instead are building their own profits now because they know they'll be gone in three to five years. OpenServer is slowly dying, UNIXWare has been a non-starter, and their Linux line was already dying." And, as for the future, "no one would buy SCO operating systems now."
Claybrook blames it on the new management. "If Ransom Love was still in charge, this wouldn't have happened. I think he would have resigned before he went with it."
McBride insists, though, that application hosting and vertical business, based on SCO UNIX operating systems and Web Services via SCOx, will be profitable. At the same time though, during his teleconference, McBride may it sounds like the real profits will come from SCOSource, the division charged with realizing money from UNIX IP, in amounts that may range from tens of millions, to hundreds of millions or even billions.
For now, SCO's reported net income of $4.5 million on revenue of $21.4 million for the 2nd quarter with $13.1 million of revenue coming from its operating systems and $8.3 million from SCOSource's licensing program. SCO says this was the first time that SCO has ever had net income.
On any other day this would have been great news. Today, after a stock-price drop of almost 27% on the NASDAQ, the market paid more attention to Novell's IP claims than SCO's claims and numbers.