Update: SCO steps up licensing battle, reports loss

SCO sent out letters to selected large Linux users charging them with violations of the U.S. Digital Millennium Copyright Act. The letter outlines what SCO claims are copyright violations related to Linux. Certain application binary interfaces have been copied from SCO's Unix System V code into Linux without proper authorization or copyright attribution, the Lindon, Utah-based company said in a statement.

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The letter, dated Dec. 19 and posted to the www.sco.com Web site on Monday, includes the largest listing of alleged copyright violations provided by SCO to date. It lists 71 files from the Linux 2.4.21 kernel that, it claims, are identical to SCO's Unix System V code. These files were allowed to be re-distributed as part of a 1992 settlement agreement between AT&T Corp. and the developers of the Berkeley Software Distribution operating system, but they may not be used in Linux, SCO said.

"We have a clear-cut set of violations here," said Darl McBride, SCO's chief executive officer.

Removing the code in question would make it impossible to run current applications on Linux, he added. "This is very substantial in reach in that every application that's been written, you're going to have to rewrite," he said.

Linux advocates disputed McBride's interpretation, saying that the issues SCO brings up have already been addressed in the 1992 AT&T settlement. "This issue has actually been resolved in court quite a long time ago in that APIs (application program interfaces) are not copyrightable," said Bruce Perens, a founder of the Open Source Initiative.

A few dozen of these letters have been sent out to licensees of Unix System V that are also running Linux, SCO said. The company plans to send out several hundred of these letters to other Linux users over the next few months, McBride said.

Additionally, SCO said that it is mailing notices to its Unix licensees requiring them to certify full compliance with their Unix source code agreement. This includes certifying that the licensee is not using Unix code in Linux, has not allowed unauthorized use of licensed Unix code and has not breached confidentiality provisions, SCO said.

SCO has raised the ire of the open source community by claiming that Linux is an unauthorized derivative of Unix. The company is embroiled in a lawsuit with IBM Corp. over a Unix license and in May sent out a first letter to Linux users warning them of potential legal liability for the use of Linux.

McBride could not say whether the files mentioned in the December 19 letter had been contributed by IBM or some other Linux contributor. "We don't know where they came from," he said.

Legal fees associated with its intellectual property rights campaign pushed SCO into the red in its fourth fiscal quarter ending Oct. 31. The company reported a net loss of $1.6 million, compared to a loss of $2.7 million in the year-ago period.

Excluding $9 million in legal fees, SCO would have reported net income of $7.4 million, the company said.

Fourth quarter revenue jumped to $24.3 million from $15.5 million a year ago, the company said. The SCO source licensing initiative accounted for $10.3 million of total revenue, the result of licensing agreements with Microsoft Corp. and Sun Microsystems Inc. earlier in the year, SCO said.

Looking ahead, SCO expects revenue for the first quarter of its 2004 financial year, which ends Jan. 31, to be between $10 million and $15 million. Unix products and services are expected to account for the bulk of revenue, while revenue from licensing is expected to be minimal as the company finalizes license agreements.

Also on Monday, Novell Inc. raised a challenge to SCO's copyright claims by announcing that it had registered copyright for much of the same Unix System V source code that is being claimed by Linux.

Novell once owned the intellectual property rights to Unix System V and the company now claims that it, and not SCO, retains copyright over the Unix source code. SCO claims it acquired copyright following a 1995 transaction.

Novell has registered copyright with the U.S. Copyright Office for versions 2.0, 3.0, 3.0/386, 3.1, 3.2, 3.2/386, 4.0/386, 4.1ES, 4.1ES/386, 4.2/386, and 4.2MP, according to company spokesman Bruce Lowry.

SCO has registered copyright for version 3.0, 3.1, 3.2, 4.1ES, 3.2/386, 4.1ES, 4.2MP, and 4.2, said SCO's senior vice president of SCOsource, Chris Sontag.

SCO's stock closed Monday at $17.73, down $1.07.