Mr Graeme Samuel
Chair
Australian Competition and Consumer Commission
[address, phone, fax]

Dear Chairman

Open Source Victoria Complaint in relation to conduct of SCO Unix

1. Overview

   1. By a press release dated 20 January 2004 (copy attached) the SCO Group Inc (SCO) (www.sco.com or www.thescogroup.com1) announced the availability of a licence which "permits the use of SCO's intellectual property, in binary form only, as contained in Linux distributions" (the SCOSource Initiative). SCO's press release raises a number of issues of concern for Open Source Victoria (OSV), to the effect that consumers may be mislead by the actions of SCO or may have been mislead in the past. OSV asks the ACCC to investigate these concerns.

2. OSV's concerns

   1. OSV is concerned that SCO may be doing or may have done one of the following in trade or commerce:

      1. making a false or misleading representation concerning the need for any goods or services in connexion with the supply or possible supply of goods or services by representing that people who have already acquired a licence for Linux from SCO are required to acquire an additional licence; or, as an alternative to (a)

      2. made a false or misleading representation concerning the existence, exclusion or effect of any condition, warranty, guarantee, right or remedy in that when SCO granted licences over Linux in the past it wrongly stated the scope of rights granted under the licence (in particular that binary execution was permitted).

   2. OSV understands that SCO is currently involved in a dispute over whether or not it has any copyright entitlements in respect of parts of the code in Linux. OSV considers that, as this complaint does not involve any representation as to SCO's copyright holdings, then even assuming these claims are taken at their highest, they do not have any substantive effect on this complaint.

3. About Linux

   1. Linux is an operating system licensed under specific licensing conditions (known as "the GPL") which are aimed at promoting competition for ancillary goods and services. Linux represents an emerging market, and one which unhindered, would grow very rapidly.

4. This complaint relates to the Linux Kernel only

   1. The heart of Linux is the Linux kernel. This complaint relates only to the conduct of SCO in relation to the various versions of Linux kernel from version 2.2. The current version of the Linux kernel is version 2.6.

5. About the Linux Market and the GPL

   1. According to SCO:2

      "The Linux market is not characterized by some of the traditional barriers to entry that are found in most other markets, due to the open source nature of the Linux kernel"

   2. OSV attributes Linux's rapid growth to the pro competitive licensing terms on which it is made available, namely the GNU General Public Licence, also known as the GPL. The GPL requires the disclosure of the source code of the Linux operating system. SCO describes this by saying that "anyone can freely download Linux and many Linux applications and modify and re-distribute them with few restrictions"3. The end result is a highly pro-competitive market in which competitive differentiation takes place primarily in services rather than in monopoly control over a key component.

   3. OSV is concerned by the nature of the representations recently made by SCO, in that the message to the market is that there will be additional, and substantive, barriers to competition (ie that SCO may act as a gatekeeper by refusing to grant a licence) in the market both for Linux and for ancillary goods and services related to Linux. This removes the key competitive advantage that Linux vendors have to offer – that their customers are acquiring from a free market rather than one which is subject to control by a specific vendor (as is the case for other operating systems).

   4. The research group IDC in July 2002 predicted that on servers Linux would have a 35% share of the installed base share by 2006 (at a cumulative annual growth rate of 21%), with a 7% share of the installed base for desktop systems by the same time (CAGR 44%).

   5. As the Linux product has received significant media attention only recently, and is a product which is licensed on a substantially different basis to similar products fulfilling the same function, potential acquirers of the product are especially vulnerable to misleading or deceptive conduct. OSV considers that the emergent nature of the market also means that any adverse impact SCO's actions have will be substantially compounded over time.

6. About SCO Linux/ Caldera

   1. OSV understands that:

      1. SCO Unix (SCO) previously traded under the name of Caldera International (Caldera) (after 7 May 2001)4;

      2. for several years prior to April 2003 in trade or commerce SCO distributed various versions of the Linux operating system under names including "SCO Linux" and "Caldera OpenLinux" (the "SCO Versions")5;

      3. each of version 2.2 and version 2.4 of the Linux kernel have been included in at least one of the SCO Versions6

      4. SCO purported to grant licences to the Linux kernel forming part of the SCO Versions under the terms of the GPL7 over an extended period of time (see paragraph (b) above);

      5. The terms of SCO's end user licence agreements over the SCO Versions permit any licensee, subject to some minor qualifications, to8:

         1. "copy and distribute verbatim copies of the Program's source code as you receive it, in any medium,…"
         2. "modify your copy or copies of the Program or any portion of it"
         3. "copy and distribute the Program (or a work based on it, …) in object code or executable form" and
         4. run the program

      6. SCO now represents that licensees require an additional licence from SCO to use the licensed software in circumstances already permitted by SCO's previous licences (a "right to use" "in binary form"9 – in other words, to run the program)10.

   2. OSV also understands that:

      1. SCO claims that when it licensed software under the GPL it didn't really mean to;11

      2. SCO was aware of the nature of the GPL and the risk of code (including SCO code) being included in the SCO Versions illicitly;12

      3. SCO was distributing versions of the Linux kernel under the terms of the GPL as recently as early December 200313

7. Reasoning

   1. OSV is concerned that SCO is representing that recipients of a SCO Version are required to acquire an additional licence from SCO. If this is the case, then either the result of the initial licence grant by SCO was that recipients of the SCO Versions received the rights SCO said that they would receive (ie the rights to use and distribute the relevant kernel in accordance with the terms of the GPL) or they didn't.

   2. If the former is true, then when SCO initially licensed the SCO versions it made a false or misleading representation as to the effect of rights.

   3. If the latter is true, then a further licence from SCO is unnecessary and SCO's statement that recipients need a further licence is a false or misleading representation as to the effect of rights.

   4. OSV notes that the terms of the licence are specifically directed to consumers who, in addition to using the SCO Versions themselves, are also contemplating on supplying them to others. It is not an uncommon practice for acquirers of a Linux kernel to then on supply that kernel to others as part of a service offering. If SCO repudiates the licences it has granted over the SCO Versions, both the initial takers, and anyone to whom they have on supplied the kernel will be affected. Such conduct has the potential to be very damaging both to consumers and to businesses who may wish to on supply the kernel of the SCO Versions.

   5. Whether or not SCO realised what it was doing when it granted licences over the kernel on the terms of the GPL should not be relevant. SCO purported to grant a licence over the SCO Versions and should not be able to rely on its own conduct to diminish those licence grants.

8. Remedies

   1. In the view of OSV, if SCO has previously offered to licence specific versions (2.2 and 2.4) of the Linux kernel on the terms of the GPL then:

      1. SCO should be required to be held to those licence terms in respect of existing licensees. Those licences should be declared to be valid and effective;

      2. where a consumer acquired a copy of the relevant Linux kernels from SCO prior to the commencement of SCO's SCOSource intitiative, then that consumer should be entitled to the grant of a licence by SCO on terms which are of the same effect as the GPL;

      3. any marketing conducted by SCO in relation to its SCOSource initiative should explicitly state that existing licensees of OpenLinux and SCOLinux products are not required to acquire any additional licences and that such existing licences are valid and enforceable according to their terms;

      4. SCO should correct its existing advertisements and advertise those corrections;

      5. consideration should be given to the appropriateness of the imposition of pecuniary penalties.

Con Zymaris
On behalf of the
Open Source Victoria Industry Cluster

[Phone,Fax, Email
www.osv.org.au