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About Those "Patents" MS Licensed from SCO in 2003: What I'd Like Novell to Ask SCO or MS in Discovery
Sunday, July 31 2005 @ 03:00 AM EDT

Back in May of 2003, SCO announced that Microsoft had paid them millions, and we were told this is what they paid for:
According to a statement from Microsoft, the company will license SCO's Unix patents and the source code.
Remember that detail? Patents. Plural. At the time, everyone, including me, took them at their word that such patents existed and had been licensed, even if only as cover.

But now that Ninja Novell has put its SCO cards on the table, including at least an implied fraud card, no pussyfooting around, in its Answer and Counterclaims [PDF], it's clear there will be discovery in SCO v. Novell regarding the Microsoft license, and they will be looking more closely at the deal struck. We're all looking more closely. Novell has asked to see the license, and it's very likely they will get to see it. Discovery is very broad, as you may have noticed in the SCO v. IBM case. Anything the least bit relevant is usually ordered turned over. So, if they do depositions of SCO and/or Microsoft employees, here's a question I'd like Novell to ask:

What patents, exactly, did Microsoft license?

I've tried to find SCO patents, and all I can find is this Caldera Systems, Inc. patent dated March of 2003. It has nothing to do with the Linux kernel, by the way, and is describing, I think, a kind of network administration and software update mechanism, kind of like up2date. Patents are deliberately written so no one knows what they do, so I'm guessing, and patent law isn't my field, but if I'm in the ball park, surely Microsoft didn't need to license that, did they? Even if they did, considering the date of application, February of 2000, and the listed owner, why wouldn't they have contested the patent instead? What due diligence did they do regarding SCO's claims?

Anyway, Microsoft told us patents, not *a* patent, according to the media report. So, which patents would those be? I can't find them. Can you? If this is the one and only, and they mispoke, and they did license it, exactly how has Microsoft used this vital, patented material since 2003? It has to be vital, right, to pay millions to use it? Did SCO threaten to sue Microsoft if it didn't pay up, and Microsoft rolled over?

Any use of the patent that dates from after Microsoft reads this Groklaw article doesn't count, by the way. No cheating, Microsoft. Cheating would be very, very naughty. Your nanny would have to put you in the Naughty Corner until you apologize.

Joke. Joke. They can't cheat. Either SCO had patents, plural, to license back then, or they didn't. It's not fixable now, if they said it. And lots of cynical eyeballs are watching now, unlike in 2003, when we were all naive and a bit dumbfounded by SCO.

SCO's Chris Sontag, as you'll see, said the deal was "a standard, straight-up Unix licensing agreement, like many we've done in the past", which would seem to support Novell's claim for its cut. Regarding any Unix patents that SCO might claim they got from Santa Cruz, right after Caldera purchased whatever it is they purchased from Santa Cruz, in August of 2000 Ransom Love was asked if Caldera had gotten any patents, and he said he didn't know, but "That wasn't our intent". And now Novell CEO Jack Messman tells us that Novell retained all the patents, which would explain why I couldn't find them for SCO. And, indeed, if you look at this Caldera 10Q from the third quarter of 2001, look what they say they got from Tarantella, formerly Santa Cruz:

Intangible assets acquired:
Distribution/reseller channel
Existing technology (consisting primarily of UnixWare and OpenServer)
Acquired in-process research and development
Trade name and trademarks
Distribution agreement
No patents. No copyrights. Trade name and trademarks *are* listed, however, so they didn't just forget to list the IP assets, did they? If Novell retained the patents, as it says, and never sold them to Santa Cruz, obviously Santa Cruz couldn't pass patents it didn't get from Novell to Caldera.

So what patents did SCO have to license? SCO hasn't sued anyone over patents, not IBM, not anyone. Here's their complaint in SCO v. IBM, so you can check it for yourself. Why not?

Of course, if you haven't got patents, you can't litigate over them, can you? But you can't license them either.

So why did Microsoft say it was licensing patents? Just carelessness? I find it hard to believe that any corporation would pay millions without knowing precisely what they were getting in return. Did SCO tell them, as they did the media, that they had patents, and Microsoft failed to do due diligence? Perhaps I have missed some patents, and it will be revealed in discovery. Or if you find some, let me know and I'll update the story. If not, and they in fact had no patents to license, or just one, why did Microsoft and SCO say that Microsoft was licensing patents? They can't say they didn't know SCO said it. SCO put out a press release, and the press asked Microsoft to comment on it and they did.

To remind of you of what happened, I've collected some materials on this subject from that time period.

To start us off, here is the SCO press release about the Microsoft license. Notice the headline says patents, but the text says a patent:

SCO Announces UNIX Licensing Deal With Microsoft

SCO Licenses UNIX Patents and Source Code to Microsoft

LINDON, Utah, May 19, 2003 -- The SCO® Group (SCO) (Nasdaq: SCOX), the owner of the UNIX® operating system, today announced it has licensed its UNIX technology including a patent and source code licenses to Microsoft® Corporation. The licensing deal ensures Microsoft's intellectual property compliance across all Microsoft solutions and will better enable Microsoft to ensure compatibility with UNIX and UNIX services.

"There are many companies in the IT industry who acknowledge and respect the intellectual property of software," said Chris Sontag, senior vice president and general manager for SCO's intellectual property division. "With this announcement, Microsoft is clearly showing the importance of maintaining compatibility with UNIX and Microsoft's software solutions through their software licensing. This important step will better help their customers implement UNIX and Windows® solutions."

Microsoft joins thousands of IT companies, educational institutions and customers that have licensed the UNIX source code for the benefit of their organizations. UNIX is one of the most widely used operating systems in the industry for implementing highly scalable computing solutions for high-end computing.

About The SCO Group

The SCO Group (Nasdaq: SCOX) helps millions of customers in more than 82 countries to grow their businesses with UNIX business solutions. Headquartered in Lindon, Utah, SCO has a worldwide network of more than 11,000 resellers and 4,000 developers. SCO Global Services provides reliable localized support and services to all partners and customers. For more information on SCO products and services visit .

SCO, TeamSCO and the associated SCO logo are trademarks or registered trademarks of Caldera International, Inc. in the U.S. and other countries. UNIX is a registered trademark of The Open Group in the United States and other countries. Microsoft is a registered trademark of Microsoft Corporation. All other brand or product names are or may be trademarks of, and are used to identify products or services of, their respective owners.

Naturally, Microsoft was contacted by the press for clarification:
  • SCO on Monday said that Microsoft has licensed from it the source code and patents associated with the Unix operating system. . . .

    A Microsoft representative said that the deal was simply in response to SCO's request. "Microsoft respects legitimate licences, and Microsoft took that licence (from SCO). That's it," the representative said.,39020472,2134917,00.htm

  • The software giant will license SCO's Unix patents and source code, which SCO said would ensure Microsoft's intellectual property compliance across all Microsoft solutions and will better enable it to ensure compatibility with Unix and Unix services. . . .

    Chris Sontag, senior vice president and general manager for SCO's intellectual property division, said in a statement: "There are many companies in the IT industry which acknowledge and respect the intellectual property of software.

    "With this announcement, Microsoft is clearly showing the importance of maintaining compatibility with Unix and Microsoft's software solutions through its software licensing." Brad Smith, general counsel and senior vice president at Microsoft, added: "The announcement of this licence is representative of Microsoft's ongoing commitment to respecting intellectual property. "This helps ensure intellectual property compliance across Microsoft solutions and supports our efforts around existing products like Services for Unix."

  • Through the deal, SCO has licensed Unix technology, including source code and patents, to Microsoft, said Chris Sontag, senior vice president and general manager of the company's SCOsource, a division in charge of managing and protecting SCO's Unix intellectual property. . . .

    Windows Services for Unix, now in Version 3.0, consists of different components that bridge the gap between Windows- and Unix-based systems running in the same network, according to information on Microsoft's Web site. The product's services include file sharing, remote access and administration, password synchronization, common directory management, a common set of utilities and a shell, according to Microsoft's Web site.

    Microsoft didn't immediately return calls seeking comment on the deal. But in an e-mail statement, Brad Smith, the company's general counsel and senior vice president, said the agreement "is representative of Microsoft's ongoing commitment to respecting intellectual property [IP] and the IT community's healthy exchange of IP through licensing. This helps to ensure IP compliance across Microsoft solutions and supports our efforts around existing products like Services for UNIX that further UNIX interoperability."

    The deal isn't a reward from Microsoft for SCO's recent legal challenges to the Linux operating system, Sontag said. Microsoft has been very vocal about the threat that Linux poses to its business.

    "That is simply not the case," he said. "This is a standard, straight-up Unix licensing agreement, like many we've done in the past" with other companies, he said. . . .

    Asked to comment on the news of the licensing deal at a news conference today, Oracle Chairman and CEO Larry Ellison seemed to have no compunction about drawing a link between the agreement and SCO's litigation. "Bill [Gates] is innovating. Microsoft has always had incredible innovation. You've had advanced bundling, and what you see now is extreme litigation. They have a lot of experience with extreme litigation, actually," he said.

    Microsoft once licensed Unix source code from AT&T Corp., Unix's creator, but that license ran out after Microsoft abandoned the Unix-related project that had prompted the licensing, Sontag said.

    A SCO spokesman said that the licensing deal will allow Microsoft to continue a program, announced earlier this year, of providing deeper Unix services.,4814,81352,00.html

As you see, they all reported patents, plural. Of course, there was speculation at the time as to why Microsoft would take a license. SCO made a public statement, through its irrepressibly loquacious CEO Darl McBride, that it hired David Boies to investigate who was violating its "IP", and VP Chris Sontag chipped in with some grandiose hints that their claims might include Microsoft, as well as BSD and MacOS:

  • At that time he also confirmed to eWEEK that the company had hired high-profile attorney David Boies and his legal firm to investigate whether Windows, Mac OS X, Linux and versions of BSD infringed on the Unix intellectual property it owned. As SCO was concerned about a number of other issues relating to its IP, it had approached Boies to deal with the matter. . . .

    But the unlicensed use of its Unix shared libraries was just the "tip of the iceberg as there are so much IP we're dealing with here, ranging from copyright, trade secrets, patents, source code and licensing issues.

    "Because this range of IP-related issues is so broad-based and there is such a wide-range of players involved, we're just making sure we move forward very sure-footedly. We don't want to start running before we can walk. We're trying to take things in the right order," McBride said.,1895,904685,00.asp

  • Microsoft would say nothing further on the matter, and certainly did not want to answer questions concerning whether or not Microsoft did this licensing deal to protect it from being sued by SCO for violating Unix patents and intellectual property rights that SCO acquired from Novell in 1995. But it is clear that any licensing deal between SCO and Microsoft would have to protect Microsoft from future litigation or Microsoft would not have bothered. Whether or not it was on the short-list of potential targets for being sued by SCO is also unknown. One potential point of legal exposure might be products created by Softway Systems, a company Microsoft acquired in September 1999. Softway developed a Unix runtime environment for Windows called Interix, which is now sold by Microsoft as Windows Services for Unix. With the licensing agreement, the theoretical question about whether or not the Softway products--or indeed any other Microsoft programs--were violating SCO patents or IP rights is moot. Still, more than a few eyebrows in the industry raised upon hearing that Microsoft had done this.

    The financial terms of the licensing deal were not disclosed, but as we went to press SCO's market capitalization has risen by about 50 percent since Friday's close to $58 million. There's no question that the lawsuits are making SCO's shareholders happy, even if it is making Linux and Unix vendors and shops jumpy. By inking a deal with SCO, Microsoft can breathe easy and let Linux and Unix shops stay jumpy, too. Microsoft would love anything that makes Linux look less desirable, and staying out of the Unix IP lawsuit and giving SCO some money to keep up its own lawsuits certainly helps in that regard.

    SCO's market cap has almost doubled since it established the SCOsource intellectual property licensing unit and launched a $1 billion lawsuit against IBM in early March contending, among other things, that IBM has stolen SCO's intellectual property and put it into Linux or abetted those who did do this. IBM denies these allegations, of course, and says further that SCO cannot revoke its license to Unix, which SCO has threatened to do on June 13, because the license it has to Unix is perpetual and irrevocable.

    In a separate announcement, SCO and Microsoft announced that SCO and business partner Center 7, which is based in SCO's hometown of Lindon, Utah, have created an authentication product for Microsoft's Active Directory for Windows that runs on top of Unix. SCO Authentication for Microsoft Active Directory costs $999 on a RISC/Unix box with 25 active users, with additional licenses costing $20 per user. Customers with more than 1,000 users can buy a site license at a discount.

As a result of such claims, the media dutifully reported that SCO had patents, and here is just one example:
Unix was invented more than 30 years ago by AT&T, which later sold the technology to Novell. SCO acquired the patents and source code in 1995. Caldera Systems, a distributor of Linux software, bought most of SCO's operations over two years ago and recently changed its name to SCO.
Novell contests that history of a patents sale, of course, and we'd have to point out that "SCO" in that paragraph is referring to Santa Cruz Operation, now called Tarantella, not The SCO Group of today, which used to call itself Caldera.

Here is the contract in the Santa Cruz-Caldera deal, the Caldera Systems, Inc./Caldera Holding, Inc./Santa Cruz Operation, Inc. Agreement and Plan of Reorganization dated August 1, 2000, a version with the three amendments attached, one in September of 2000, and one in December of 2000, and one February of 2001, and a Caldera International 5/16/2001 SEC filing, a 13D, General statement of acquisition of beneficial ownership, with exhibits attached, including stockholder agreement, secured promissory note, form of security agreement, and escrow agreement. You can find Caldera/SCO's quarterly and annual reports filed with the SEC on Groklaw's SCO Financials page.2 At the time Microsoft agreed to take a SCO license for whatever it was purportedly for, analysts were skeptical and viewed it as a cover:

"There's obviously an agenda on Microsoft's part. They want SCO to win this case because if they do, it will cause a considerable amount of chaos in the market," said George Weiss, a vice president at Gartner. "They've transitioned away from attacking Linux head-on, and they're doing it back door, indirectly, [employing] a much subtler strategy of trying to align themselves with SCO in the interest of [intellectual property]."

Channel partners expressed mixed sentiments about SCO's licensing deal with Microsoft. One Linux solution provider said SCO's licensing agreement with Microsoft simply serves political interests of both vendors to slow down Linux's success in the marketplace.

"I think Microsoft is paying a small amount of money to create a mountain of perception that the SCO claims regarding Linux have weight," said Anthony Awtrey, vice president at I.D.E.A.L. Technology, a solution provider in Orlando, Fla. "I would view this the same as the U.S. funding the enemies of our enemies. Large potential gain for very little risked."

One Microsoft solution provider agreed that the licensing deal is likely motivated by Microsoft's interest to hurt Linux, but nevertheless said its stance with SCO to protect intellectual property will likely add weight to SCO's legal case against IBM.

"This will make IBM's case much thinner," said the solution provider. "Microsoft will play they're the good guys doing the right thing, but we know that's never true."

Perhaps the analysts were right, and Microsoft just wanted to give SCO money and didn't even check to see if there actually were any patents. No wonder Novell wants to see that license. And when it does get to see it in discovery, I hope they let us in on the solution to the mystery of SCO's phantom patents.

1 If you go through the quarterlies, you'll find that from 2002 onward, the following sentence appears: "On May 7, 2001, we formed a new holding company, Caldera International ('Caldera'), to acquire substantially all of the assets and operations of the server and professional services groups of Tarantella Inc., formerly known as The Santa Cruz Operation, Inc., pursuant to an Agreement and Plan of Reorganization, dated August 1, 2000 and as subsequently amended (the 'Tarantella Acquisition')." "Substantially all" isn't legally the same thing as "all". And in fact, in one 2001 quarterly, they said "all" instead of "substantially all" in describing the same deal: This change in wording, from all to substantially all, may just reflect the vagueness that Ransom Love revealed when he was asked what they'd bought. Or it could reflect that they had been doing an analysis of what they actually had in 2002, and found out it wasn't all. Tilting toward vagueness is the 3rd quarterly of 2001, which says they got only "significant assets": "In May 2001, the Company acquired significant assets and operations from Tarantella, Inc."

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