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The Davidson Email, Red Hat, and the Lanham Act
Tuesday, July 19 2005 @ 05:14 AM EDT

It's been fun watching SCO spin on the Davidson 2002 email/Swartz 1999 memo, don't you think? While a few in the media showed some confusion, and one joined SCO's frantic spin, most seemed to get one fundamental issue as clear as a bell, and you could almost hear a collective gasp and the world saying:

You mean it was all a bluff? Is this *all* SCO was holding when they said all those horrible things about Linux? Not just Linux, but Linus too?

The sheer gall of it is what resonated, even if many didn't quite catch why it mattered legally. Their jaws dropped, because even now, this late in the game, people still thought that SCO must have something, some basis, at least in their own minds, to embark on their swashbuckling slash-and-burn litigation attack on Linux.

I saw efforts to figure out the full significance of the study and the later email, where it fits in the IBM case, since that is primarily a contracts case. Well, *now* it is, after SCO's trade secrets and copyright infringement claims pretty much bit the dust. They were trying to figure out why this study, followed by the "we found absolutely nothing" email, would matter in an IBM context. If there never was any real evidence of infringement, what does that mean in the SCO v. IBM lawsuit? It does matter in that context, and IBM indeed has accused SCO of a number of things that the email and the ridiculous draft of a study may prove to have relevance to. For example, remember that IBM has accused SCO, in its counterclaims, of Lanham Act violations. You may remember this article:

As Red Hat did earlier in the week, IBM said SCO violated the Lanham Act, a law designed to help companies defend against allegations that may harm its business. IBM said SCO has made false claims regarding IBM's AIX and Linux-related products and services, "which affect a customer's decision whether to purchase these products or services."

Related to that, IBM is arguing that SCO engaged in unfair competition by seeking to deprive IBM of the use and sale of its Linux products and services to benefit its own Unix licensing business. In a separate counterclaim, IBM said SCO's legal actions have marred its business relationships with other companies.

But the big issue isn't IBM, in my opinion. Don't forget Red Hat. That was the first thing I thought of when the Davidson email surfaced.

When SCO began its trash talk, Red Hat wrote to them and asked them to provide the basis for their public claims, and got nothing, so they sued saying that SCO had no basis. The study seems to confirm that Red Hat was on the money, unless SCO has something to show us now or at trial that would justify the things they said back then. They specifically accused SCO of making false statements to the press, false advertising, and said that SCO had made vague statements without presenting any evidence to back them up. That, to me, is the issue. Did SCO have any evidence to back up their verbal attacks on Linux and on the open source method of development? If not, Red Hat may eat them alive.

Let's go back and take a look at what Red Hat is claiming in its lawsuit against The SCO Group. I think it will help you to understand why SCO is trying to spin, spin, spin so hard and what they are probably really afraid of. At least, I'd be scared, if I were them.

Do you remember why Red Hat said it filed its lawsuit against SCO in August of 2003?

"We filed this complaint to stop SCO from making unsubstantiated and untrue public statements attacking Red Hat Linux and the integrity of the open-source software development process," Mark Webbink, Red Hat's general counsel, said in a statement.

Bryan Sims, Red Hat's vice president of business affairs and general counsel, said the Raleigh, N.C.-based company has asked the court to determine that it hasn't infringed on SCO's copyright or misappropriated any of SCO's trade secrets.

"We also brought a claim under the Lanham Act for false advertising and unfair competition under federal law that the statements that SCO was making are deceptive and untrue," he said.

Sims said Red Hat also filed a complaint under the state of Delaware's deceptive trade practices act.

"We also filed three other claims [under state law], one for unfair competition, one for trade libel, meaning they disparaged our trademark by making these untrue and unfair statements, and one saying they intentionally and wrongfully interfered with our business relationships," Sims said.

Red Hat is also seeking a preliminary injunction barring SCO from continuing its claims that Red Hat's Linux violates SCO's intellectual property, he said.

In Red Hat's complaint, they accused SCO of the following:

The Plaintiff, Red Hat, Inc. ("Red Hat"), has commenced this action in response to the unfair, untrue and deceptive campaign now being waged by the defendant, The SCO Group, Inc. ("SCO"), to harm the market for Red Hat's highly successful operating system based on the open source LINUX kernel. As described below, SCO's tactics have centered on the use of highly publicized, but vague, general and unsupported claims that portions of the LINUX kernel and operating system contain intellectual property allegedly owned by SCO, in hopes that such unfair, untrue and deceptive statements will cause users and potential users of LINUX to re-evaluate their plans to deploy LINUX as a primary component of their Information Technnology infrastructure.

SCO's claims are not true, and are solely designed to create an atmosphere of fear, uncertainty and doubt about LINUX. . . .

Again, although the LINUX source code is publicly available, SCO repeatedly has refused to identify publicly even one line of SCO source code that was copied.

SCO's tactics are as obvious as they are unlawful. SCO makes grand public claims about the potential liability of anyone using LINUX because of alleged violations of SCO's purported intellectual property, but then refuses to support those claims with the detail that would exist if SCO's claims were true. . . .

Additionally, SCO's campaign is designed to further what, upon information and belief, has been referred to as the "LINUX Lottery" -- the ability to reap personal profit by carefully timed purchases and sales of SCO stock.

That is just how it opens. Red Hat is asking for a declaratory judgment that Red Hat is not infringing any copyrights of SCO's but it is also asking for treble damages, attorneys fees and costs "for harm caused by SCO's unfair competition and false advertising in violation of Section 43(a) of the Lanham Act...., unfair and deceptive acts or practices in violation of the Delaware Deceptive Trade Practices Act..., as well as for violations of common law, including trade libel, unfair competition, and tortious interference with prospective economic advantage."

If you wish to read about "SCO's Wrongful Actions" in detail, it begins on page 10. One of them listed was the letter SCO sent to the 1500 businesses, claiming that the Linux development process was flawed, leaving them liable for infringement as end users, but again without any specifics, a strategy that Red Hat said was designed to make it impossible for the Linux community to defend itself or demonstrate the falsity of SCO claims.

Paragraph 59 made me think of the study:

SCO's illicit strategy is transparent -- make loud public claims about alleged intellectual property rights, provide no detail (since it does not exist), and hope to use the time-honored technique of creating fear, uncertainty and doubt to slow the growth and use of LINUX, damage the business of LINUX providers such as Red Hat, coerce unwarranted fees from LINUX users by threats of litigation, and, upon information and belief, even create enough nuisance value to be acquired while running up the price of SCO's stock in the short term, thereby creating various financial opportunities to wrongfully enrich the originators of this scheme.

When I saw the Davidson email, and particulary the memo from 1999, the thought came into my mind, Has this all been just another "Get the Facts" style sleight of hand?

So, Lanham Act claims. What's that? First, here is the statute, the relevant part being this:

1125. False designations of origin and false descriptions forbidden

(a)

Civil action.

(1)

Any person who, on or in connection with any goods or services, or any container for goods, uses in commerce any word, term, name, symbol, or device, or any combination thereof, or any false designation of origin, false or misleading description of fact, or false or misleading representation of fact, which--

(A)

is likely to cause confusion, or to cause mistake, or to deceive as to the affiliation, connection, or association of such person with another person, or as to the origin, sponsorship, or approval of his or her goods, services, or commercial activities by another person, or

(B)

in commercial advertising or promotion, misrepresents the nature, characteristics, qualities, or geographic origin of his or her or another person's goods, services, or commercial activities, shall be liable in a civil action by any person who believes that he or she is or is likely to be damaged by such act.

Here's an article that nicely explains false advertising under the Lanham Act, what you have to prove to prevail on such a claim. What exactly are the elements of a claim of false advertising?

Courts have formulated the following elements for a claim under 43(a):
  • The defendant must have made a false or misleading statement of fact in advertising.
  • That statement must have actually deceived or had the capacity to deceive a substantial segment of the audience.
  • The deception must have been material, in that it was likely to influence the purchasing decision.
  • The defendant must have caused its goods to enter interstate commerce.
  • The plaintiff must have been or is likely to be injured as a result.
United Industries Corp. v. Clorox Co., 140 F.3d 1175, 1180 (8th Cir. 1998).

To obtain monetary damages - as opposed to simply injunctive relief - a Lanham Act plaintiff must also demonstrate actual consumer reliance on the false advertisement and a resulting economic impact on its own business.

Think Red Hat might be able to prove all the elements if this lame study, with SCO's own employee discrediting it, is all they had? SCO told the media, and I saw it quoted in several accounts, that the study said there were issues that needed investigating further. That's what they are doing in AutoZone and IBM in discovery they said. But this is two years' later. What factual basis did they have in March of 2003 when they began trash talking Linux?

You can't just make up bad things to say about a competitor's products for the fun of it. Well, you can, but not legally. The Lanham Act says you can't. No wonder SCO asked for every scrap of code ever written by IBM. (By the way, check out yesterday's UserFriendly. He has a solution for the SCO problem: give them more code.)

They desperately have got to find something, to justify all those claims of having mountains of infringing code, line-by-line identical code. Remember all that? What proof did they have *at the time that they made those claims* that any of it was true? Surely not just that study? They sued on a hunch? Very, very dangerous to malign a competitor's product on a hunch. What if you never find anything in discovery?

I've heard from a number of readers over the years we've done Groklaw who have told me that their company decided not to switch to Linux for fear of the SCO litigation. There was a tremendous effect, at first, that without a doubt impacted on the marketplace, and indeed that seemed to be the purpose of all the PR from SCO.

Now, in both the IBM and the Red Hat cases, at least, SCO faces charges of deception, deception material enough that it was "likely to influence the purchasing decision." The law divides false advertising, the article explains, into three categories, implied falsity, literal falsity and "mere puffery." The last isn't something the court cares about, but the other two are actionable. It's much easier to prove implied falsity, they explain, but if the study, the draft of the study, is all they had, considering the qualifying email, would it be impossible to prove literal falsity? Implied falsity is where you say something that is literally true, but it misleads materially. Remember the claim that SCO had already so much proof of infringement it didn't even need to do discovery?

What about the claim that the Linux development process was fundamentally broken, that it was a "free-for-all" and that the only choices left for Linux users in the enterprise were to stop using Linux or to drop down to an earlier kernel or pay SCO money to leave them alone and in peace? Money. Hard earned money. For what? Mr. Davidson's email, saying that they looked for infringement but that the study found absolutely nothing indicates that 8 years into development, the process worked perfectly, and SCO had reason to know it.

To prove an implied falsity claim, you have to do the following, the article continues:

If the claim is an express tests-prove claim, then the plaintiff must show the tests or surveys relied on are unreliable or do not in fact support the advertising claim. But where there is a bald or non-establishment claim, which does not expressly rest on a test or study, then the Lanham Act plaintiff must show the claim is actually false and cannot merely attack any tests or peer-reviewed studies that support the claim. In essence, the plaintiff must generate affirmative proof that the statement is literally false, rather than simply take potshots at the defendant's tests or studies on which the advertisement does not expressly rely.

Think Red Hat or IBM would find it difficult to prove that study was insufficient to support SCO's public claims, now that you've seen all of SCO's evidence, or most of it, in two years of observing day in and day out? Think about Dr. Randall Davis or Dr. Brian Kernighan's declarations, for starters. What about SCO's representations about the study to the press recently? SCO was quoted by the media as saying that the study shows there are possible problems with Linux. But that isn't what they claimed. They didn't claim there were possible issues. The consultant who did the study wrote that he wanted oldSCO employee Michael Davidson to review those possible issues, because he was the expert on the history of the company, not the study's author.

Mr. Davidson did review the study's findings, and he told SCO executives that the study found absolutely nothing, no copyright infringement at all, that any seeming issues turned out to be code legally used. Mr. Davidson read the report, and whatever information Mr. Swartz characterized in his 1999 memo, the fragments, etc., Mr. Davidson considered it all, and he says the study found "absolutely nothing". He acknowledges some similarities, but with his expertise, he concludes that while there is "a lot of code that is common between UNIX and Linux", upon investigation "invariably it turned out that the common code was something that both we (SCO) and the Linux community had obtained (legitimately) from some third party." If SCO has evidence to the contrary, where is it?

And to repeat a point made in the article when the email surfaced, but some may have missed, since I tacked it on as an update, there is the issue of the files the study listed as possibly infringing:

But what about the ABI files -- errno.h, the ELF headers and so forth? As I understand it from Dr. Stupid, they are essentially unchanged in today's kernel from how they looked in 1999. A naive automated code comparison between Linux and SysV does turn up matches in these files, he says. It thus seems hard to believe that Swartz would not have come across these similarities. Yet Davidson concluded they were "absolutely nothing." Would not that statement directly contradict SCO's public claims regarding the ABI files? . . .

And then there is the later study in 2004 by the world-renowned Dr. Randall Davis, who concluded in his 2nd Declaration:

"Despite an extensive review, I could find no source code in any of the IBM Code that incorporates any portion of the source code contained in the Unix System V Code or is in any other manner similar to such source code."

SCO said back then -- nay, it broadcast it from the rooftops -- that Linux had in it mountains of copyright infringement, so much infringing code they told us there was no practical way to remove it and still run Linux. In the Red Hat case particularly, they simply must show they had a factual basis for making those claims.

Either they will have to take those MIT deep divers out of storage pronto and produce their alleged findings at last to justify their talk, I think, or find something, or they would seem to be vulnerable to losing the Lanham Act claims. I don't see how the study, on its own, can save them, because of the later Davidson email. Frankly, my jaw dropped too, when I read the memo and the email, and as familiar as I am with the SCO saga, I too said to myself, Is that all there is?

I can't help but wonder about shareholders, too. If they thought SCO was holding stronger cards than it turns out they actually had, and bought stock based on that impression, then what? Like, oh, BayStar, for example.


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