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March 7, 2003

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SCO-Caldera Sues IBM in Intellectual Property Dispute

Nearly One-Half of SCO-Caldera Income from IP Licensing and Enforcement

By Mike Angelo -- 7 March 2003 (C)

Updated: 7 March 2003 -- 13:15 EST

SCO-Caldera & the GNU/Linux Community:

Note: Until 2001, the Santa Cruz Operation (SCO), a UNIX company, and Caldera International (CALD), a Linux company, were two different companies. In 2001, Caldera acquired SCO. Then in 2002 Caldera changed its business name to the SCO Group. However, the corporate name remains Caldera International.

Many people still think of the SCO Group's Linux operations as Caldera. In order to make sure that readers would know and realize throughout the article that what is now the SCO Group is also the company once called Caldera, the SCO Group is often referred to as SCO-Caldera in this article.

SCO (NASDAQ: SCOX), the company formerly known as Caldera (NASDAQ: CALD), has put some teeth into its intellectual property (IP) saber-rattling and market posturing. Yesterday afternoon, U.S. Mountain Time, SCO-Caldera filed a lawsuit against IBM . The legal action appears to be about claims involving the UNIX and Linux operating systems.

The lawsuit is styled:

CALDERA SYSTEMS, INC., a Delaware corporation d/b/a THE SCO GROUP,

Plaintiff,

vs.

INTERNATIONAL BUSINESS MACHINES CORPORATION, a Delaware corporation, Defendant.

and was filed in a Utah state trial court, The Third Judicial District Of Salt Lake County, rather than in a Federal district court.

SCO-Caldera specifies four counts, also known as causes of action, in its Complaint:

Count I. Misappropriation of Trade Secrets--Utah Code Ann. §13-24-1 et seq.

Count II. Unfair Competition

Count III. Interference with Contract

Count IV. Breach of Contract

Interestingly, none of these counts are for UNIX source code copyright infringement. The impression we formed upon skimming over the 136 paragraph Complaint is that SCO-Caldera is all bent out of shape because SCO is losing UNIX business because its UNIX customers are switching to Linux. The gravamen of that hits you in the face when you read paragraphs 82 to 86 of SCO-Caldera's Complaint.

82. Linux started as a hobby project of a 19-year old student. Linux has evolved through bits and pieces of various contributions by numerous software developers using single processor computers. Virtually none of these software developers and hobbyists had access to enterprise-scale equipment and testing facilities for Linux development. Without access to such equipment, facilities, sophisticated methods, concepts and coordinated know-how, it would be difficult or impossible for the Linux development community to create a grade of Linux adequate for enterprise use.

83. As long as the Linux development process remained uncoordinated and random, it posed little or no threat to SCO, or to other UNIX vendors, for at least two major reasons: (a) Linux quality was inadequate since it was not developed and tested in coordination for enterprise use and (b) enterprise customer acceptance was non-existent because Linux was viewed by enterprise customers as a "fringe" software product.

84. Prior to IBM's involvement, Linux was the software equivalent of a bicycle. UNIX was the software equivalent of a luxury car. To make Linux of necessary quality for use by enterprise customers, it must be re-designed so that Linux also becomes the software equivalent of a luxury car. This re-design is not technologically feasible or even possible at the enterprise level without (1) a high degree of design coordination, (2) access to expensive and sophisticated design and testing equipment; (3) access to UNIX code, methods and concepts; (4) UNIX architectural experience; and (5) a very significant financial investment.

85. For example, Linux is currently capable of coordinating the simultaneous performance of 4 computer processors. UNIX, on the other hand, commonly links 16 processors and can successfully link up to 32 processors for simultaneous operation. This difference in memory management performance is very significant to enterprise customers who need extremely high computing capabilities for complex tasks. The ability to accomplish this task successfully has taken AT&T, Novell and SCO at least 20 years, with access to expensive equipment for design and testing, well-trained UNIX engineers and a wealth of experience in UNIX methods and concepts.

86. It is not possible for Linux to rapidly reach UNIX performance standards for complete enterprise functionality without the misappropriation of UNIX code, methods or concepts to achieve such performance, and coordination by a larger developer, such as IBM.

In addition to money awards for the specific damages set forth in the above four Counts, Caldera d/b/a SCO seeks additional money awards for punitive damages, exemplary damages, and attroenys' fees.

SCO-Caldera now owns a good chunk of what at one time was the intellectual property (IP) of AT&T's UNIX Systems Laboratory (USL) -- including the source code for the UNIX operating system developed by AT&T's Unix Systems Laboratory. Through a series of sales, that UNIX source code now is owned by SCO-Caldera.

SCO-Caldera claims that the GNU/Linux source code is based upon its UNIX source code. In paragraph of 74 its Complaint Caldera d/b/a SCO alleges: A new operating system derived from and based on UNIX recently has become popular among computer enthusiasts for use on personal, educational-based, and not-for-profit projects and initiatives. This operating system is named Linux.

However, prominent members of the Linux, GNU/Linux, and UNIX communities have denied SCO-Caldera's claims that Linux was derived from UNIX. Rather, they say Linux was built from the ground up and independently of the UNIX source code.

SCO-Caldera expects an anticipated $10-million in revenues from intellectual property licensing and enforcement for the fiscal quarter ending 30 April 2003. That means that SCO intellectual property licensing and enforcement will contribute nearly one-half (43.4-percent actually) of its anticipated $23-million in revenues for the fiscal quarter ending 30 April 2003.

We will update this story as we develop more information about this SCO-Caldera lawsuit against IBM.

In the meantime, please see the first two parts of our series about SCO-Caldera's IP claims plus its intentions to enforce and license its intellectual property rights.

SCO-Caldera & the GNU/Linux Community: The SCOsource IP Matter

SCO-Caldera & the GNU/Linux Community: Part 2, Under the Iceberg's Tip




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