SCO's Wake-Up Call to IT Users & Outsource Customers & Providers
A Baker & McKenzie Client Alert
submitted by Michael Mensik
On July 21, 2003, the SCO Group announced that the U.S. Copyright Office had issued copyright registrations for the Unix System V source code and offered to grant UnixWare licenses to users of Linux 2.4 and subsequent versions. This announcement follows SCO’s multi-billion dollar action against IBM earlier this year, alleging that IBM wrongfully gave certain SCO-owned Unix code to the Linux community. It also follows SCO’s “warning letters” to roughly 1,500 enterprises that use open-source Linux, alerting them that they too may face legal action and liability.
These developments will not pass unnoticed in the ongoing development of the body of law once quaintly referred to as “computer law”. Just as we appeared to be nearing another inflection point, where the forces of open source were about to demonstrate that they indeed might inevitably conquer the forces of proprietary code, a voice claiming lawfully protected interests emerges to make some of those whose job security rests on providing uninterrupted access to computing power second- guess economically unassailable platform decisions of the recent past.
When licensing software from a capitalist, we can legitimately demand certain warranties and indemnities – that the licensor has the right to provide the software; that it does not misappropriate or infringe the rights of others; and appropriate remedies if either proves not to be true. But what can we really expect when licensing from the “commons”? And how does the landscape differ if the enterprise has outsourced its IT infrastructure to a third party provider? Under such circumstances, who bears the risk that Linux may misappropriate or infringe SCO’sproprietary rights – the customer or its service provider?
Linux. Linux is an open-source alternative to Unix, developed by Finnish college student Linus Torvald in 1991. Although Linux’s initial functionality was far less robust than Unix’s, in recent years computer developers from around the world, working independently and with the assistance of industry partners like IBM, Redhat and even SCO have increased the robustness of enterprise- level features competitive with the market-leading Unix offerings. Because Linux is a
freely distributed open-source product, most Linux vendors have adopted a service-basedbusiness model.OR OREkernet.com
SCO’s Suit Against IBM. SCO’s amended complaint, filed last month, alleges several breach of contract claims, unfair competition and misappropriation of trade secrets. SCO’s fundamental claim is that IBM deliberately destroyed the value of SCO’s Unix intellectual property by transferring large portions of it to open-source Linux developers. The complaint seeks relief on the grounds that this transfer was in breach of IBM’s contractual obligations not to transfer copyrighted Unix source code, derivative works or know how obtained through the late nineties
collaboration with SCO. However, despite alleging that “a very significant amount of Unix protected code” is present in certain versions of Linux, the complaint conspicuously does not charge IBM with copyright infringement.
Implications for Linux Users. SCO’s announcement that it has registered copyrights for Unix System V source code could prove extremely significant. Prior to this announcement, the absence of copyright claims from SCO’s complaint against IBM, coupled with a May 12th open letter from Novell claiming that SCO did not own any copyright to Unix source code, had undermined the credibility of SCO’s threatening letter campaign. Since the announcement, ho wever, Novell has retracted its earlier claim, admitting that SCO owns at least some copyrights to the System V source code. This retraction may help SCO persuade users to take itscurrent aggressive licensing efforts more seriously.
The scope and status of SCO’s copyright claims are of special significance to Linux users. Because most Linux users, unlike IBM, have no contractual relationship with SCO, these users cannot be held liable for breach of contract. However, if the version of Linux used contains copyrighted Unix source code, SCO could potentially mount copyright infringement claims against every Linux user.
Implications for Outsourcing. Enterprises that use Linux under an outsourcing arrangement may have recourse against their service provider in the event that SCO is able to sustain its claims. In negotiating outsourcing agreements, users and their advisors commonly insist that the provider indemnify the user if the software or equipment used to provide the service misappropriates or infringes a third party right. This indemnity may encompass software and equipment acquired
from the user at the outset of the relationship. Moreover, the indemnity may cover not only third party claims, such as SCO’s, but the user’s own damages and losses. On the other hand, outsourcing providers may want to leave such liability with their customers, particularly with respect to platform decisions that the provider may inherit.
Parties to existing outsourcing arrangements that involve Linux may want to check the indemnity provisions of their contracts. Going forward, SCO’s actions likely means that these provisions will receive greater scrutiny by both outsourcing customers and providers.
For more information contact: Mike Mensik, Baker & McKenzie 312-861-8941 firstname.lastname@example.org