"Thanks to all of you for joining us today.Yesterday, Red Hat filed a legal action against the SCO Group in Delaware federal court and announced the formation of the Open Source Development Fund. The purpose of this call today is to comment on those actions and discuss SCO's new licensing plan going forward.
"Red Hat's lawsuit confirms what we've been saying all along: Linux developers are either unwilling or unable to screen code in the Linux kernel to remove infringing code before customers buy and use it.
"Let me be clear. Red Hat is selling Linux that contains verbatim and obfuscated code from UNIX System V. Red Hat is also selling Linux that contains derivative works from UNIX that have been contributed to Linux in violation of UNIX licensing agreements. Some of these companies, like IBM and Sequent, have now had their license agreements terminated for acting in violation of the terms and agreements.
"We've had a chance to preliminarily review the lawsuit and Red Hat's press statement from yesterday, and there's several responses to [inaudible].
"First, RH claims that we have not shown examples of infringing code in Linux. This statement is simply not true. We have shown examples of infringing code in Linux to many distinct people, including some Linux advocates. We set up a viewing center in Lindon, Utah. We have gone to companies around the world to show infringing code.
"In fact, this same offer was made to RH, but they chose instead to sue us. RH is apparently trying to pretend that no problem exists.
"The code that the court will review in this case contains verbatim code from UNIX and misappropriated derivative works from UNIX. That has to be clear to the people that have reviewed the example code that we have shown. [inaudible]
"Second point: RH claims SCO is at fault for its loss of recent Linux business. We believe that SCO is not at fault for RH's recent loss of business. Rather, we suggest that RH has adopted a faulty business model. In its [inaudible] disclosure filed with the SEC on July 7th, 2003, just a few weeks ago, RH included very revealing risk factor disclosures that speak to this business model. The risk disclosure states that RH relies on software developed by independent parties over whom it exercises no control. The disclosure statement continues to state that RH lacks access to unpublished software patent applications and copyright registrations. These are RH's words about its own business. RH's disclosure also warns that if infringing code is in Linux, it may need to stop product shipments.
"In fact, this warning is consistent with the requirements of Section 7 of the General Public License, under which Linux is shipped to end users. The GPL states in Section 7 as follows:
"'If, as a consequence of a court judgment or allegation of patent infringement or for any other reason (not limited to patent issues), conditions are imposed on you (whether by court order, agreement or otherwise) that contradict the conditions of this License, they do not excuse you from the conditions of this License. If you cannot distribute so as to satisfy simultaneously your obligations under this License and any other pertinent obligations, then as a consequence you may not distribute the Program at all. For example, if a patent license would not permit royalty-free redistribution of the Program by all those who receive copies directly or indirectly through you, then the only way you could satisfy both it and this License would be to refrain entirely from distribution of the Program.'
"So, this is the main problem of RH's business model. It distributes under the GPL. It has no control to prevent infringing code from going in to Linux. But if infringing code is found, RH is required under the GPL to stop shipments of Linux. That business model seems unsustainable in the long run.
"We believe it is the real cause of RH's business problems, not SCO. These issues would have surfaced eventually, with or without SCO."
"Third point: RH has pledged one million dollars for a Linux Development Fund. This pledge misses the mark. SCO has never considered suing Linux developers as individuals, only companies that employ them, like IBM, who are taking improper advantage of their UNIX licenses with SCO.
"Furthermore, RH's pledge will not do anything for end users, since there is still no indemnification for Linux end users. If RH or other Linux [inaudiable, maybe players] decides at some point in the future to [inaudible, maybe redraw] the defense fund to protect those who need protecting, we'd suggest they need to increase the size of the fund dramatically. With over 2 1/2 million servers running infringing Linux 2.4, the price of indemnification is measured in the billions of dollars, an exposure which monumentally dwarfs the current pledge of one million dollars."
Fourth point: Red Hat thinks SCO should publicly show them every line of infringing code. Why is this? So RH can acknowledge SCO's legitimate claims and acknowledge the key role that UNIX intellectual property is playing in the growth of Linux? Not likely.
"Red Hat thinks we should show them every line of infringing code so they can make changes and go forward, in complete ... with complete disregard for our business rights. Some [inaudible] developers are so comfortable with misappropriating UNIX code and derivative works that they seem to feel an entitlement to keep doing it. [inaudible, something about SCO spending a lot of money to develop and purchase their valuable IP] That makes no sense.
"At issue here is more than just SCO and Red Hat. What is at issue is whether intellectual property rights will have any value in the age of the internet, where intellectual property rights can be simply taken without regard to rightful ownership. Some people think they have the right to do that. Linux companies seem to encourage that, and even make business models around selling an unwarranted software code developed under a 'Don't Ask, Don't Tell' policy.
"Our society is engaged in an important debate to decide whether IP will remain proprietary or whether it will all become communal property according to Richard Stallman's vision for all software distributed under the General Public License, such as Linux.
"There are so many current intellectual property [inaudible, maybe violations or infractions], responsible corporations cannot disregard this as someone else's problem. SCO, one small company, intends to defend its intellectual property rights vigorously against Red Hat and all others.
"This is the only clear path for long-term profitability growth for any company in this internet era."