The war for Linux market supremacy took an interesting turn last week as The SCO Group opened two new fronts in its efforts to regain what it sees as its intellectual property rights.
Lindon-based SCO (Nasdaq: SCOX) announced last week it had suspended all sales of the Linux operating system and warned commercial users of Linux that there may be legal liability tied to continued use of the OS since SCO contends that Linux is an unauthorized derivative of its UNIX operating system.
In January 2002, SCO announced it had formed a new division known as SCOsource as part of an effort to manage its UNIX intellectual property.
At the time, SCO explained that its "patents, copyrights and core technology date back to 1969 when Bell Laboratories created the original UNIX source code."
The company also announced at the same time it had retained the services of attorney David Boies, "of the law firm Boies, Schiller and Flexner for research and protection of SCO's patents, copyrights and other intellectual property."
Less than two months later, SCO launched a billion-dollar lawsuit against IBM, claiming the company had absconded with its UNIX IP by providing it to the Linux community, something SCO claims IBM did not have the rights to do. (See March 10, 2003 "Utah Tech Watch" at deseretnews.com/dn/view/0,1249,465031743,00.html.)
Additionally, SCO gave IBM 90 days to come into compliance with its lawsuit, saying it would otherwise remove its permission for IBM to sell its version of UNIX, known as AIX.
Some industry observers estimate IBM generates upward of $10 billion in annual revenues from its AIX business, so we're not talking small potatoes here.
In the letter distributed last week to more than 1,300 corporations worldwide (see www.sco.com/scosource/letter_to_linux_customers.html), SCO President and CEO Darl McBride stated that "We have evidence that portions of UNIX System V software code have been copied into Linux and that additional other portions of UNIX System V software code have been modified and copied into Linux, seemingly for the purposes of obfuscating their original source."
McBride further added that "legal liability . . . may also rest with the end user."
The two-punch combination of SCO halting its sales of Linux, as well as its initial mailing barrage, sends a very loud message to the Linux community at large and to organizations around the world that it is very serious about its intent to protect (and generate revenues from) its intellectual properties (particularly UNIX).
As important as these two fronts are to SCO's long-term efforts to monetize its IP, I believe a separate SCO announcement from last week has greater significance to the company and its SCOsource efforts.
Specifically, SCO announced Thursday it has signed its second SCOsource licensing agreement, an agreement the company termed "substantial."
Lending credence to this claim is the fact that SCO expects to announce later this month that it has generated $8.2 million during the quarter ended April 30, 2003 from its SCOsource licensing initiative.
According to Bob Bench, SCO's chief financial officer, the company anticipates net profit margins from its SCOsource efforts of up to 70 percent.
If true, SCO's efforts to monetize its IP have already borne fruit since one can make the claim that the company's projected $4.0 million in net profits for the quarter can all be attributed to SCOsource licensing revenues. Wow!
"People are finally realizing the strength of our intellectual property," McBride explained.
He may be right. At least that's how I feel after watching SCO's stock price rocket upward 28 percent, or $1, on Thursday. (Early afternoon trading on Wall Street Friday saw SCO's stock up an additional three percent to $4.69.)
The next shoe in this unfolding Utah-driven drama should drop within the coming three to four weeks.
Watch the news wires to see what IBM does in response to SCO's lawsuit and demands for compliance.
My guess is IBM will thumb its nose at SCO and say, in effect, "See ya in court." And if this happens, look for SCO to seek an injunction to prevent IBM from selling AIX.
Either way, it's not going to be a boring summer.
Ninety minutes prior to today's opening bell on Wall Street, SCO announced a UNIX licensing agreement with Microsoft "which ensures Microsoft's intellectual property compliance across all Microsoft solutions and will better enable Microsoft to ensure compatibility with UNIX and UNIX services."
Although it turns out that this is one of the two previously announced UNIX licensing deals the company has signed since unveiling SCOsource back in January, investors are receiving the news quite well.
As of 11:00 a.m. Eastern time today SCO's shares were up nearly $2.50 per share on volume of more than 900,000 shares, already 10 times higher than the typical daily volume.
Like I said, it's not gonna be a boring summer.
David Politis leads Politis Communications, a public relations, investor relations and marketing communications agency serving the high-tech and biotech markets.
E-mail: dpolitis@politis.com.