Can Hewlett Packard Protect Its Linux Customers from SCO Lawsuits?

At a 24 September 2003 telephone press conference, Hewlett Packard Vice-President, Martin Fink, announced that HP would offer indemnification to customers who purchase a Linux-based Solution . . . directly from HP, with a standard support contract. In effect, this announcement constitutes a response to SCO's claim that Linux end-users need a SCO IP License for Linux in order to run the GNU-Linux operating system on their computers or face possible IP enforcement action from SCO.

Simply put, HP is promising to substitute itself in the place of any HP Linux-product customers that SCO might chose to sue for copyright infringement. That means that in such circumstances, HP would spring for the legal defense against any such SCO actions and HP also would pay any money damages awarded to SCO by courts. Martin Fink noted in his presentation that [b]y doing this, HP is showing its leadership and demonstrating its true commitment to Linux.

Generally, we agree. Linux broadly includes the Linux kernel, the GNU-Linux operating system, the many Open Source and Free Software applications that run on the GNU-Linux OS, and really the entire Linux/GNU-Linux community. Thus, Linux does not have a single, unique corporate structure. It's actually a very broad-based and diverse thing.

The Linux/GNU-Linux diversity is in many ways the strength of Linux. That broad-based diversity also is its weakness, a weakness that SCO-Caldera has capitalized upon in its anti-Linux war. Because Linux is not a single, huge corporate empire with a war-chest, Linux depends on the collection of corporate entities that benefit from Linux to pitch in and to help to counter-attack SCO's anti-Linux war.

By offering to indemnify its Linux-product customers against SCO copyright-infringement lawsuits, HP has pitched-in to help Linux take on SCO. That shows leadership. And it shows commitment!

The Strings of HP's Indemnification Program

Nevertheless, there are strings and other conditions that must be examined. For example, HP customers have to sign a special indemnification agreement with HP. Martin Fink put it this way: we do require customers to sign a (sic) addendum related that's specific to the indemnification, and so for existing customers who have met the requirements of new customers, we will be offering the indemnification as well.

In response to a press conference question from Maureen O'Gara (Client Server News), Martin Fink explained some of the strings in the addendum this way: as long as you purchased Linux from HP, and that you run on HP hardware and you haven't modified the source code, what we will do is take over defense on your behalf should you get sued by SCO. So if you encounter a lawsuit from SCO, you therefore agree to give that defense away to HP, and HP becomes the one who defends, on your behalf, and assumes the liability as a result of that defense on your behalf as a customer.

The mentioned addendum was not available at press time. So, we are not able to analyze closely the proposed addendum in this article. One thing that is apparent from the information we have at press time is that HP customers that sign HP's indemnification addendum will be giving up their GNU-GPL (GNU General Public License) rights to modify Linux code. More about that further on.

The Nuts, Bolts, and Issues of HP's Indemnification Program

HP's SCO indemnification promise raises several interesting issues. One of those issues is the question of just how solid is HP's indemnification promise? Should SCO go on the warpath against GNU-Linux end-users, can HP really protect its Linux-product customers from SCO litigation and having to pay money to SCO for using GNU-Linux?

We discussed this and other HP indemnification issues with HP spokesperson Elizabeth Phillips, SCO's Blake Stowell, and legal analyst Tom Carey. Unfortunately for HP Linux-product customers, HP was unable to articulate specifically its ability to pick up the tab should SCO prevail in copyright infringement actions against a large number of HP Linux-product customers. Moreover, SCO's position is that HP's indemnification promise notwithstanding, HP Linux-product customers need to have a SCO IP License for Linux in order to run that HP Linux product without infringing upon SCO's Unix copyrights.

In an e-mail discussion Thursday, SCO's Blake Stowell told MozillaQuest Magazine: SCO's position is that anyone running Linux for commercial business purposes, based on the 2.4 kernel or later, should contact SCO to obtain a SCO IP License for Linux.

Blake went on to say: In the case of HP, they are saying, "don't worry about purchasing a SCO IP License for Linux, because if SCO approaches you to purchase one, we will step in and either purchase a license for you or we will protect you from any legal claims that SCO may make against you for not having purchased a license." SCO's position on this is that HP customers can either purchase a license now, or they can have HP pay for this license later. Either way, a license will have to be in place to properly compensate SCO for this intellectual property.

That led us to wonder just what might happen to HP's indemnification promise if SCO is correct and HP is wrong. What if HP customers do need to have a "SCO IP License for Linux" and the costs for HP to back up its indemnification promise run HP into bankruptcy? Are the HP customers that are running an HP Linux product without a "SCO IP License for Linux" on the hook to pay SCO or be sued or whatever?

Of course, many people would consider SCO wrong (Substantive Risk -- Is SCO Correct?) or HP not likely to go bankrupt (Risk Assessment). Nevertheless, the possibilities that SCO is correct or HP going belly-up should be considered in evaluating the risk involved upon relying on HP's indemnification promises.

What happens if HP defaults on its Linux indemnification promise? Would not HP's Linux-product indemnification program need to be backed up by some sort of bond, insurance carrier, or underwriter in order to be rock solid?

Is HP's Linux indemnification promise backed up by any sort of trust fund, bond, insurance carrier, or underwriter?

What guarantee do HP Linux-product customers have that HP actually can make good on its indemnification promise should SCO start to take IP enforcement actions against HP Linux-product customers?

From our telephone discussion with HP spokesperson Elizabeth Phillips about these issues, it seems there is nothing in the way of a trust fund, bond, insurance carrier, or underwriter to back up HP's indemnification promises.

Elizabeth Phillips did point out in our telephone discussion that HP claims to be a $70-billion annual revenue company. Therefore according to HP's Elizabeth Phillips, HP has plenty of money to pay all the money damages and legal costs arising from possible SCO IP enforcement actions against HP Linux-product customers. On the other hand, she was unable to provide an estimate of the worst-case scenario risk involved -- or whether HP's pockets are deep enough to cover such a worst-case scenario exposure.

SCO's Blake Stowell notes that HP is taking on a pretty huge financial burden with its Linux-product indemnification program. He also told MozillaQuest Magazine: I highly doubt there is any danger of such a program plunging them into bankruptcy.

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