SCO sues IBM for $1B in intellectual property fight

Three months after launching a campaign to protect its intellectual property rights, The SCO Group is suing IBM for more than $1 billion, charging the computer and software maker with misappropriation of trade secrets and other claims.

In a lawsuit filed yesterday, the Lindon, Utah-based software vendor, which has owned the rights to the Unix operating system since 1995, alleged that IBM has "made concentrated efforts to improperly destroy the economic value of UNIX, particularly UNIX on Intel, to benefit IBM's new Linux services business."

The 31-page lawsuit, filed in District Court in Salt Lake County, also charges IBM with tortious interference, unfair competition and breach of contract.

IBM spokesman Mike Fay said today that the company is still reviewing the lawsuit, which it received this morning. "The complaint is full of bare allegations and no facts to support it," he said. "SCO never approached IBM ... in advance of filing it" to discuss the matter.

Darl McBride, SCO's CEO since June, said in an interview this morning that the lawsuit was inspired by public comments made recently by IBM executives who have allegedly said they're moving features from IBM's AIX Unix into Linux to benefit enterprise customers as part of IBM's Linux strategy. The problem with that, McBride said, is IBM doesn't own AIX, but licenses it through SCO.

"It goes to the heart of confidentiality agreements in AIX contracts," he said. "IBM has been publicly saying that they're OK putting AIX into open source, that it's not a problem for them," he said. "When you take our valuable intellectual property and say you're going to move it into open source, then we have a major problem."

If IBM wants to make its own products, including WebSphere, Tivoli, Lotus and DB2, open source, that's fine with SCO, McBride said. "This case is about IBM making commitments to us and honoring them."

In January, SCO announced that it was beginning an initiative to look into possible violations of its intellectual property rights to protect its interests (see story). The case against IBM is the first major effort in that fight.

SCO had also announced the creation of a new division, SCOsource, to manage its intellectual property assets.

Analyst Bill Claybrook at Aberdeen Group Inc. in Boston said public statements from IBM executives may not be enough to prove SCO's case in terms of what IBM is doing with AIX and Linux. "What they have to prove is there was some code from AIX ... that actually made its way into Linux," Claybrook said. "That may not be hard to prove."

Brian Ferguson, an intellectual property attorney at McDermott Will & Emery LLP in Chicago, said the SCO suit against IBM is "an attempt to show the industry that they mean business."

"It looks to me like a strategy not necessarily to save their own business, but to use the intellectual property purely as a manner of generating revenue," Ferguson said. "It's one thing to have an executive of IBM make a comment. It's another thing to take that comment and make it into a claim."

The strategy could be successful, though, because when a plaintiff seeks such a large damage award, there can be major risks for a defendant in going to trial. "I'm sure SCO is going to paint this as the tiny little David vs. the Goliath who stole their secrets out from under them," Ferguson said. "That's the risk that IBM takes, and that could make them negotiate [a settlement], even if they think they have the better case."

Brian Kelly, a licensing and intellectual property attorney at Fenwick & West LLP in Mountain View, Calif., said that by choosing IBM as its first target, SCO will gain a large amount of publicity and a defendant with deep pockets. He said he expects IBM to fight the claims fervently, because it has huge investments in Linux. It's conceivable, though, that SCO could show that some of its code found its way into Linux through IBM, he said.

"It's possible, if you're not filtering carefully, yes, there could be something in that that infringes on someone else's intellectual property rights," Kelly said.

IBM has built its own AIX Unix under license since February 1985, when the company entered into a Unix license agreement with AT&T Bell Laboratories, which owned Unix at the time. Ten years later, SCO bought the rights and ownership of Unix from AT&T, including source code, source documentation, software development contracts, licenses and other related intellectual property. After the purchase from AT&T, SCO became the licensee to all Unix distributors, including Hewlett-Packard Co., IBM, Silicon Graphics Inc. and Sun Microsystems Inc., according to SCO. The licensing agreements require that the Unix software code be held in confidence and prohibit unauthorized distribution or transfer.

SCO sent a letter to IBM demanding that it "cease these anticompetitive practices." If the requirements aren't met, SCO will have the authority to revoke IBM's AIX license 100 days later, on June 13, according to SCO.

SCO has been moving to revamp its business since September, when it went through a name change and renewed its emphasis on its longtime Unix core product line (see story).

Copyright © 2003 IDG Communications, Inc.

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