[glug-t] The Most Hated Company In Tech

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Subject: [BANGLA-IT] The Most Hated Company In Tech


The Most Hated Company In Tech
SCO's huge Linux suit against IBM is a long shot that may yield
nothing but bile


He can't say he wasn't warned. In June, 2002, when Darl McBride was
getting ready to take over as chief executive at struggling Caldera
International Inc. in Lindon, Utah -- later renamed SCO Group
Inc. --he mused that claiming ownership of some of the underlying
code in the popular Linux computer operating system could keep the
company afloat. Even though Caldera's revenues were declining, it was
losing $5 million per quarter, and its stock had slid below the $1
NASDAQ delisting price, the reaction of outgoing CEO Ransom Love was
instantaneous. "Don't do it," Love says he told McBride. "You don't
want to take on the entire Linux community."

McBride did it anyway. Last March, he shook up the computer world by
filing a $3 billion suit against tech giant IBM (IBM ), claiming Big
Blue had illegally inserted more than 800,000 lines of SCO-owned
software code into Linux. Since then, McBride has turned up the heat.
In December, SCO sent letters to more than 1,000 Linux customers
accusing them of illegally using SCO's property. Now, the company
warns that it will sue a Linux user within days. One potential
target, SCO says, is Internet search phenom Google Inc. The company,
which says it has not talked to SCO about its claims, uses Linux
computers and is on the verge of its initial public offering.

As a result of all this, SCO has become the most hated company in the
tech world, surpassing, at least temporarily, Microsoft Corp. SCO has
infuriated dozens of businesses and thousands of volunteer
programmers who helped Linux become the world's second-most-popular
operating system for server computers, with tens of millions of
copies in use, trailing only Microsoft's (MSFT ) Windows. Linux is
open-source software: free in its most basic form and owned by no
one. Many of the tech world's top companies -- including IBM,
Hewlett-Packard (HPQ ), and Dell (DELL ) -- have hitched on to this
rocket. For its most ardent fans, no words are too harsh for SCO.
"They're a cornered rat, and I think they have rabies to boot," jabs
the normally mild-mannered Linus Torvalds, who started Linux as a
college student in 1991.

The retribution against SCO has been fast and furious -- a volley of
arrows from all sides. Since it sued IBM, SCO has been slapped with
two countersuits, one by IBM and the other by Red Hat Inc. (RHAT ),
the largest seller of Linux software. SCO's Web site has been shut
down three times by hackers. And McBride has even received death
threats. One was so unnerving that SCO's security had a sharpshooter
in the room when McBride spoke at a tech conference in Las Vegas in
December. "The theater of this -- it's sort of beyond belief for all
of us," he says.

`NO IMPACT SO FAR'
But, in the end, this dispute may amount to little more than theater.
While emotions are running high, BusinessWeek interviews with SCO
executives, industry leaders, lawyers, software experts, and
corporate tech buyers all point to a single conclusion: SCO likely
won't stop Linux.

Its legal case against IBM and Linux customers is not clear-cut. What
little evidence it has made public is inconclusive, according to
lawyers and software developers who have examined it. While there are
similarities between some code that SCO claims it owns and material
in Linux, it's not clear to software experts that there's a
violation. To win against IBM, SCO will have to prove that IBM
programmers placed the code in Linux -- which may be hard to
document. Besides, SCO might not even own the technology. Software
maker Novell Inc. (NOVL ), a backer of Linux, has competing claims.
"There are real flaws in SCO's arguments," says Thomas C. Carey,
partner at law firm Bromberg & Sunstein in Boston.

The most convincing evidence of Linux' resilience is what's happening
in the marketplace. Even though corporations are nervous about
lawsuits, they haven't lost their hunger for Linux. In the third
quarter, the most recent for which data are available, sales of
computer servers that use Linux were up 49.8% from a year ago, to
$743 million, far outstripping the 2% growth for the rest of the
market, according to market researcher IDC. Red Hat landed 3,000
customers last quarter, up from 1,000 in the quarter that SCO sued
IBM. And in a new wrinkle, entire countries, including China and
Israel, have announced plans for widescale adoption of Linux on
desktop PCs. "SCO seems to have had no impact so far," says Dan
Kuznetsky, an analyst at IDC.

There's still a possibility that SCO could damage Linux' momentum.
Corporate tech users may to some extent be cowed by its threats.
Despite more than 20 attempts by BusinessWeek, not a single
corporate Linux customer would talk on the record about SCO's claims
for fear of drawing legal fire. And if the case goes to trial as
scheduled in April, 2005, it will be on SCO's home turf in Salt Lake
City. SCO's lead lawyer, famed litigator David Boies, could try to
sway the jury by portraying giant IBM as a bully putting the screws
to a small Utah outfit.

A win would be a huge windfall for SCO. With server-software
licenses costing $699 per machine, Google alone, if found liable,
could be on the hook for $7 million in license fees. The market for
Linux servers is expected to have topped $4 billion in 2003. Add the
fledgling market for Linux pcs and Linux in consumer electronics,
and you have an opportunity not seen since the early days of the PC.

THE MICROSOFT FACTOR
But who stands to gain the most from an SCO win? Microsoft. Linux is
the primary force standing between Microsoft and domination of the
computer world. The software giant is happily fanning customers'
fears with an anti-Linux campaign while pumping money into SCO. Even
though neither company has disclosed a dollar figure, sources close
to SCO say Microsoft has spent more than $12 million on SCO
licenses. Microsoft says it needs the licenses because it sells
technology that allows its customers to run applications that were
designed for Unix, the operating system Linux was modeled on.
Critics believe it is just helping SCO finance its lawsuit.

In SCO's hometown, below the snow-capped Wasatch Mountains, the
dispute has pitted neighbor against neighbor. "I have had friends,
good friends, tell me they can't believe what we're doing," says
Ralph Yarro III, SCO's chairman and the head of the Canopy Group, a
private investment firm that also has backed Utah Linux companies.

Canopy manages the money of Ray Noorda, former CEO of Novell, just
up the road in Provo. Noorda is now retired after years as a bitter
rival of Microsoft, so it's ironic that his money is backing a
company aligned with his bête noire. Noorda is no longer active in
Canopy on a day-to-day basis, and some of his longtime friends are
appalled at how his money is being used. "I think about that, and it
makes my stomach churn," says one Noorda friend. Yarro agrees the
situation is a bit awkward, but he says this is about SCO's
intellectual property claims, not Microsoft. Noorda could not be
reached for comment.

McBride, like Yarro, once worked for Noorda at Novell. And like him,
he feels no discomfort with what he's doing. He argues passionately
that if companies allow their intellectual property to be inserted
into open-source products, it could destroy the software
industry. "I know people want us to go away, but we are not going to
go away. We're going to see this through," McBride says.

He certainly doesn't look the part of a bogeyman. A jocular father
of seven children, the 44-year-old McBride is a devout Mormon who
worked as a missionary in Japan and returned there several years
later to start Novell's Japanese business. After Novell, he was
briefly president of Franklin Covey Co.'s (FC ) online planning
business when Caldera recruited him.

Since taking charge, McBride has done right by his shareholders.
SCO's market capitalization, around $5 million when he arrived, has
leaped to $219 million. In its most recent fiscal quarter, SCO had
$24.3 million in sales, up 57% from the year before, owing largely
to license fees from Microsoft and Sun Microsytems Inc. The non-
licensing part of its revenues is mostly sales of its version of the
Unix operating system. Barring a $9 million charge related to hiring
Boies, the company would have had a $7.4 million profit. "There may
be a bunch of angry Linux people out there," says McBride. "But I
have to answer to a bunch of angry shareholders."

A LEGAL MORASS
At the heart of this dispute are the original copyrights to Unix.
It's a high-performance operating system sold by the likes of Sun
Microsystems (SUNW ), IBM, and HP. Unix was originally developed at
Bell Labs, but AT&T (T ) sold the copyrights and a version of Unix
to Novell in 1993, which in turn sold the Unix product to Santa Cruz
Operation Inc. That company later entered a joint venture with IBM
to create yet another version of Unix. After that deal went nowhere,
Caldera in 2001 acquired the Unix software business from the Santa
Cruz Operation -- hoping to merge elements of Unix and Linux -- and
later changed its name to SCO Group. But its Linux business never
took off.

To law and software experts, SCO's legal claims are not strong.
First, it's not clear that it even owns the intellectual property.
Novell claims it sold Santa Cruz Operation the right to sell its
Unix software, but ownership of the original code stayed with
Novell. It has a contract that it claims backs up that assertion.
SCO has an addendum to the contract that it says dealt with the
copyright issue, but lawyers who have studied it say the language is
ambiguous.

Even assuming that SCO owns the software, the few pieces of code it
has made public haven't convinced experts that there are substantial
copyright violations in Linux. One small piece of code that was
clearly part of Unix has been removed. Software industry analysts
who have examined pieces of SCO's Unix code say they see some
similarities between it and Linux. Robert Enderle, principle of
industry consultant the Enderle Group, examined about 100 lines of
code and says some similarities were "remarkable." He believes SCO's
claims should be taken seriously but cautions: "Whether they can
defend ownership of the code is still to be determined."

SCO faces an uphill battle with IBM, too. It has to prove IBM
actually provided copyrighted code to the Linux community. IBM says
this didn't happen: It says it has always had a strict wall between
its Linux developers and anyone working with proprietary software
and can prove it in a courtroom. Also, SCO may not even have a right
to sue. In its countersuit, IBM claims that because SCO worked on
and sold Linux software, it must abide by an open-source contract
that bars a company that sells the work of the Linux community from
turning around and suing the companies that distribute that work.

If SCO starts suing customers, those customers will have potent
defenders. Novell and Hewlett-Packard Co. have indemnified their
Linux customers against SCO's legal claims. And on Jan. 12, the Open
Source Development Labs, with the backing of companies such as IBM
and Intel (INTC ) Corp., announced a $10 million legal defense fund
for Linux customers.

It might be easier to shrug off SCO's case if it weren't for Boies.
After all, he brought Microsoft to heel for the Justice Dept. The 63-
year-old is putting his reputation on the line. He likes backing
David against Goliath. "You have a very small company with a very
big legal issue, and you knew that that very small company was going
to be confronting the giants of the industry," Boies says. "Even at
my age, it's hard to resist."

Not that he's doing it for free. In an unusual compensation
arrangement, SCO says it paid Boies and the other lawyers $1 million
in cash and gave them 400,000 shares of the company, now worth $15.77
apiece. Deutsche Bank (DB ) estimates the share price could hit $185
if SCO wins -- and if so, the lawyers would get a $74 million payday.
They also receive 20% of the revenues from SCO's
intellectual-property licensing.

Those terms make SCO look more like a lawsuit than a normal company.
In this litigious society, there's not much shame in that. But unlike
the case with regular companies, if this suit doesn't pan out,
McBride and his shareholders may be left with very little. If so, a
weird episode in tech history will end with a whimper, and a lot of
people will be celebrating.

By Jim Kerstetter in Lindon, Utah

Source:
http://www.businessweek.com:/print/magazine/content/04_05/b3868104_mz
063.htm?tc




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