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SCO Threatens to Sue Hollywood. Yeah, Right.
Friday, November 07 2003 @ 08:29 PM EST

SCO has given a scoop to Forbes' Daniel Lyons. You need a subscription, but you can sign up for free for two issues, if you are willing to go around and around and around before you get to read Mr. Lyons' valuable proprietary intellectual property. Yahoo has it too. [2004 Update: No longer available on Yahoo. Wayback has it, though, page 1 and page 2.]

Why ever would they choose Daniel Lyons for an exclusive, do you suppose? Normally, they issue their threats in press releases.

I know you can't get enough of Daniel Lyons' reporting on Linux, so here you go, a new, more restrained Lyons piece, in which he reveals that SCO threatens to sue everybody on Planet Earth if they use Linux and happen to have deep pockets. Ah, the eternal, holy quest for money. First, they will sue Hollywood, they say. They use buckets of Linux there, they've heard, so off SCO goes for its cut.

Yes, SCO says it is planning to sue a Hollywood company for the high crime of using Linux for its special effects. They haven't chosen their victim yet, but it sounds like it will be the first company that refuses to pay SCO off when SCO asks for license fees. It's litigaton or licensing, says tough guy McBride:

"Most of Hollywood's big special-effects and animation companies now use Linux. DreamWorks, maker of Shrek and Sinbad , boasts on its Web site of its 'groundbreaking adoption of Linux.' Digital Domain, which worked on Titanic and Apollo 13 , runs Linux on about 1,000 processors. Lucas Digital runs Linux on nearly 1,500 boxes to create effects for the Star Wars epics and Harry Potter movies.

"But this love affair with freeware may prove costly. SCO Group, a $64 million (sales) software shop in Lindon, Utah that owns copyrights to the Unix system that inspired Linux, aims to collect fees from companies that use the free code. It may target Hollywood next. 'They're using a ton of Linux in Hollywood, so they've become a lightning rod for us,' says Darl McBride, SCO's chief executive.

"McBride points out that Hollywood studios, keen to protect their movies from being pirated on the Internet, have preached the need to respect copyrights. 'It's hypocritical for them to be going around saying that they don't want their stuff to be given away for free, but at the same time saying, "Boy, this free stuff sure is cool,"' he says."

Oooh. A threat. "May prove costly."

Or, it may not, when the company responds to the attempted stickup by telling SCO to get lost. I am not sure how smart it is to threaten deep pockets. They can afford to sue you right back, or even preemptively. Then SCO would need a lawyer team in three states, Utah, Delaware and California. SCO's problem is it can't talk to investors and make them happy and talk legal safely at the same time. What a dilemma.

"The Unix system that inspired Linux."

These rascals just can't quit being wrong. Unless he is using the word "inspired" in the loosest possible way, and upside down, this isn't accurate.

Mr. Lyons. I would like to hit you with a cluestick, if I may. GNU stands for "GNU's Not Unix." Got it? And Linus was inspired by student poverty and creativity, not Minix. Not being able to afford Unix, he decided to create his own kernel, from scratch. So far from being "inspired" by Minix, he found it unbelievably inadequate and decided to write something much better and fundamentally different in design. Linux is like Unix only in the sense that it's written to conform to POSIX specifications also. Here's some info on Minix for you, from Wikipedia, the free encyclopedia:

"Minix is one of a number of 'Unix look alike' operating systems that include Idris, Coherent and Uniflex. These were written because AT&Ts initial licencing of Unix precluded it being sold to commercial organisations. These operating systems were written from scratch without any AT&T code."

Let me guess. You don't trust a free encyclopedia. OK, here is some info from TechTarget:

"In 1991, after taking a course in Unix and C, Torvalds bought his own personal computer (PC). He was unhappy with the operating system that came with the computer (MS-DOS) and decided to write his own. Torvalds became interested in Minix, a small Unix-like operating system developed for educational purposes by Andrew S. Tanenbaum, a Dutch professor who wanted to teach his students the inner workings of a real operating system. Minix was designed to run on Intel 8086 microprocessors and had source code that was readily available for study. Torvalds decided to develop an operating system that exceeded the Minix standards. He called it Linux, a contraction for Linus' Minix."

Mr. Lyons forgot to check his facts, I guess. Journalists still do that, don't they? Check facts? Maybe Forbes had to let its fact-checkers go, what with the economy being bad and all.

There are some other "facts" in the story that don't sound right to me either. For example, he describes SCO as "a $64 million (sales) software company." He doesn't mention that they haven't made a profit from sales of software in the history of the company and that their sales are steadily declining. That seems like an oversight, if you are trying to write a fair and balanced article. You surely wouldn't want to mislead potential investors, or anything.

Next, Lyons mentions the licensing scheme, and says that SCO sent warning letters to the 1500 companies. He makes it appear that this is still ongoing, whereas in truth SCO announced they won't be invoicing anybody. Why wouldn't Mr. Lyons make that clear, do you suppose? He doesn't seem to be keeping up.

Neither Mr. Lyons nor Mr. McBride can comprehend the difference between someone sharing somebody else's Hollywood movies over the internet and someone sharing voluntarily his own creative work, as Linux's creators do with their code, which they wrote and which they want to share. Hollywood is not stealing GNU/Linux code by using it for its special effects. Here's what those "criminals" in Hollywood are up to, according to Mr. Lyons:

"So instead of buying pricey specialized computers from the likes of Silicon Graphics, the techies at Imageworks simply load Linux onto hundreds of cheap Intel-based PCs to crank out dazzling effects for movies like Lord of the Rings, Seabiscuit and Spider-Man. Better yet, these low-cost systems are way more powerful than what they replaced."

And this is bad, how? Then, the article continues, SCO says it will next attack "titans of financial services, transportation companies, government agencies and big retail chains." When pigs fly, they will bring all this litigation for $50 million. They aren't suing SGI, I notice. And they never mailed out those demands for license fees.

I know. They didn't need to. They had "enough" sign up. Right.

Maybe they should fulfill prior threats before they throw out new ones? Otherwise, it could lead some of us to doubt their sincerity.

To that bad attitude of mine, Mr. McBride responds that companies will be forced to choose litigation or licensing. Up against the wall, Hollywood. He says he'd be surprised if it doesn't happen before the end of the year.

Patrick Scholes, the investment banker at Morgan Keegan who advises SCO, was just dumb enough to mention to Lyons some of the companies he has had converstions with:

" By contrast, the assault on Hollywood has started on a softer note. SCO claims it has had brief conversations with executives at Fox, Universal and Sony Pictures. Patrick Scholes, an investment banker at Morgan Keegan & Co. who advises SCO, says that on Oct. 9 he spoke by phone with Mitch Singer, a senior vice president at Sony Pictures, broaching the fact that Hollywood companies use a lot of Linux. Scholes says Singer understood the implication. 'He said, "Okay, I can read between the lines," Scholes recalls.

"Singer was unavailable for comment. Sony's Imageworks runs Linux on 1,400 dual-processor servers. But executives there say they have had no conversations with SCO, and Imageworks President Tim Sarnoff says he isn't worried. 'It's not on our radar right now.' DreamWorks and Lucas Digital declined to comment on SCO's threats, as did Digital Domain."

Now I'd guess any of those companies, except maybe Sony, depending on who is tellilng the truth, could go for SCO's jugular the way Red Hat is, by filing for a declaratory judgment. Scholes may be a fine investment banker, but a lawyer he ain't.

So, let's all watch and see if the stock shoots up again. Mr. Lyons points out that some tech execs believe this is all a bluff and a shakedown. Mr. Lyons, however, cites Brian Skiba of Deutsche Bank rating SCO a buy and says at least two investors, Integral Capital and Royce have invested heavily in SCO recently. He also quotes BayStar as saying that they think SCO will get enough licenses that it makes SCO "an interesting growth story." Lyons didn't think to mention that IBM has subpoenaed Deutsche Bank and Baystar.

So who buys this stock after McBride issues his threats and all the analysts give their glowing opinions? Not Integral Capital, actually. Not any more. They just bowed out. Mr. Lyons isn't keeping up with his SEC filings. Odd. I thought Forbes journalists specialized in informing the public -- that would be me -- of financial news, not the other way around. Otherwise, what am I paying for? Maybe Lyons wrote this article last month, and just dug it out now on a slow news day. That might explain all the old and now inaccurate facts. But if I am thinking of buying stock, don't I need up-to-date information?

Say, that stock hasn't been dipping again, has it?

Here's another complaint about the Lyons story. He quotes Thaddeus Beier of Hammerhead Productions on the advantages of Linux:

"But these days ordinary Intel machines can outgun SGI machines for a fraction of the price, and free Linux sharpens that edge. Hammerhead Productions, a 30-person effects house in Studio City, Calif. that created effects for Blue Crush and 2 Fast 2 Furious, uses Linux machines that cost one-tenth the price of its old SGIgear--$1,200 versus $12,000--and yet are ten times faster, says Thaddeus Beier, director of technology.

"Beier, who runs a 30-server render farm, says he hasn't heard from SCO, but the idea of being asked to pay for Linux makes him furious. 'That just sends me right up. If I had explosives, I'd be in Salt Lake City,' he says, adding that if SCO presses him, he may drop Linux and switch to a free version of Unix."

So I interviewed Mr. Beier myself, and I asked him if he really said that about the dynamite or was Lyons doing a hatchet job on Linux again. He says he said it as a joke, and that he told Lyons he'd rather he not quote him, but he did anyway. Journalists are supposed to respect the on-the-record, off-the-record requests. So let that be a warning to you if you get a call from Mr. Lyons wanting to interview you.

I have an idea. Maybe SCO can sue Warner Bros. Hey, no kidding. Back in September, it was reported that Warner Bros. signed up for SCO's web services software, so SCO can now sue its own customer. That way, McBride could keep it All In the Family. And what a disfunctional family it is. But really, here's my concept. Let's run it up the flagpole, as they used to say, and see if anyone salutes it: Warner Bros. signed up as a new customer after SCO made clear what its mission in life was, so they may have been favorable to SCO's cause. So SCO could bring a pretend lawsuit against them. Warner Bros. refrains from suing back, settles with SCO and takes a license, and then SCO goes to court and tells investors and the judge that companies are accepting that they need a license from SCO to run Linux. Far fetched? Well, have it your way. What do I know? I'm just imagining possibilities.

I think it's a devilishly clever idea, though. And I freely donate my intellectual property. SCO can take it and run with it, and they don't even have to pay me a license fee for my methods, concepts, or designs.

Just one fly in the ointment. If they do it now that I've put the idea out here for all to see, they might not look so good, huh? Me and my big mouth.

Actually, I'm just horsing around. I don't see how they can successfully sue anybody new, now that Novell has bought SuSE. Here's an article that will show you why some say SCO has been checkmated by IBM and Novell:

"So, let's add this up, against the backdrop of indemnification. We've got two companies --- IBM and Novell --- both of which have made heavy technology and marketing investments in Linux and open source (including Novell's recent acquisition of Ximian). One of the companies (IBM) is the subject of a giant lawsuit from the company that claims to own the intellectual property rights to the technology in Linux. The other is a company that, dating back to its UnixWare days, is rumored to still have just enough Unix intellectual property rights to be immune to the wrath of SCO. The customers of these two companies want some assurances, and the CTO of Novell wants to provide them in the way of solid stack interoperation and issue-free intellectual property rights. Are we getting warm yet?

"So, if Novell is immune (which Novell officials wouldn't comment on yesterday), and SuSE belongs to Novell, then it follows that SuSE's distribution of Linux could be untouchable. IBM's Linux strategy --- of which SuSE's Linux distribution is a centerpiece --- is preserved. Novell's cross-platform services strategy (which I'll get to in a minute) --- at least a third of which (or more) depends on the long-term viability of Linux --- remains intact. Customers seeking indemnification end up with something better--a free and clear license.

"I asked Nugent what he thought of my theory. While he didn't give me much, he gave me this: 'Your intuition is good. Stay tuned.' "

You might also find Doc Searls' take on the Novell acquisition of SuSE fascinating. Everybody needs to consult their own lawyer for legal advice, which this isn't. But the bottom line in my mind is this: Novell knows what is in the BSDi settlement agreement, because they were a party to it. And they weren't a bit frightened by SCO's lawsuit and decided to go ahead and buy SuSE Linux. What does that tell you, folks?

It tells me that if SCO was planning on retrying the BSDi case, it looks like that fantasy just died aborning. Further, Novell owns some key intellectual property rights in Unix SystemV themselves, which they didn't turn over to SCO. We can probably assume SuSE had UnitedLinux agreements with SCO, they have hinted that they did, which likely cover various contingencies, such as what would happen if they ended up hating each other. That's in contracts normally. Novell would now have those too, presumably. Then there is Amendment X. Novell's Linux distro, therefore, may be pretty much sue-proof. The number of perfectly safe Linux distros keeps increasing. And all you need is one, Hollywood.

Buh-bye, indemnification FUD. Buh-bye, SCO.

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