In-Depth

Court Rules Against SCO in DaimlerChrysler Suit

SCO’s day in court almost couldn’t have gone much worse; company says it's only a minor setback

• By Stephen Swoyer
• 07/27/2004

The result, analysts say, is two-fold for SCO: little immediate legal impact outside of its specific case against DaimlerChrysler, but a potentially enormous impact in related areas.

“There have always been two perspectives in this case. There’s the legal side of things, and what appears in the newspapers and so forth really doesn’t have an awful lot of impact on that,” observes Gordon Haff, a senior analyst with consultancy Illuminata. “Then there is the court of public opinion, or perhaps more importantly, the court of the data center managers. Here SCO lost one of their biggest weapons against end user customers, which—at least in this case—was shown to be toothless.”

In March, SCO filed suit against both DaimlerChrysler and auto parts reseller Autozone Inc., claiming (in the case of DaimlerChrysler) that the auto giant had refused to demonstrate to SCO’s satisfaction that SCO’s Unix System V source code, of which DaimlerChrysler is a licensee, could not have been illegally misappropriated into Linux.

SCO’s suit wasn’t entirely unexpected. Last December, the embattled vendor contacted about 1,500 Unix System V licensees, demanding that they disclose within 30 days the safeguards they’ve put in place to protect the Unix System V source code from being misappropriated.

As it happened, DaimlerChrysler did not respond to SCO’s demands until after the latter had filed suit. In an ironic twist, SCO’s charge of tardiness was the only claim that Judge Rae Lee Chabot did not reject. If SCO chooses to pursue the case, it must do so on that basis alone.

SCO spokesperson Blake Stowell positioned the ruling as a minor setback, stressing that the decision has no bearing on SCO’s other ongoing cases. That may be the case, acknowledges Illiminata’s Haff, but Chabot’s ruling nevertheless raises questions about SCO’s legal strategy of pursuing enterprise users of Linux. “They certainly appear to have picked a very poor target from the point of view of their specific System V contract in that this customer wasn’t even using their software any longer,” he notes.

More to the point, says Haff, SCO’s controversial claim about System V and its relationship to Linux (i.e., Linux is a derivative work of System V) was given short shrift in Judge Chabot’s courtroom. “SCO basically tried to … ask for a whole variety of certifications and statements that sort of went beyond the rights that they had under their original license to DaimlerChrysler, including where Linux was being used,” Haff explains. “And their theory as to how they could kind of do that when they certainly couldn’t ask [DaimlerChyrsler] how many Windows systems were being used, was that in SCO’s legal theory, Linux is an unauthorized derivative work of System V.”

So why didn’t SCO hedge its bets and target a less prominent company than DaimlerChrysler? “In a way, they had to go after a company of Chrysler’s size simply to make a big enough splash,” speculates Charles King, an analyst with The Sageza Group. “The problem is that having gone after a very big fish, and having had their rear-end handed to them … the perception is that it’s a very big loss. I expect that’s not going to encourage anyone to pony up the cash” for SCO’s Intellectual Property License for Linux.

Even so, the DaimlerChrysler decision has almost no bearing in SCO’s other ongoing cases (against Autozone and IBM Corp., among others). But Sageza’s King says that a decision in the IBM case could break the bank for SCO. “If IBM gets the summary judgment they’ve asked for, then all of the air will be let out of this and it will all go away,” he says. “The real problem for SCO is that it’s hard to think of an organization outside of maybe the Bush Administration that has squandered more good will over the last two years than SCO. They were the keepers of the Unix jewels, at least, presumably, before all of this started.”