Update: SCO alters claim in IBM case, signs licensee

The SCO Group Inc. was granted leave last week to amend its case against IBM Corp. Trade secret claims have been dropped, and replaced with copyright infringement claims, Blake Stowell, SCO's corporate communications manager, said Monday.

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"Our lawyers felt that copyright infringements had taken place, and that we had a strong case to provide evidence around that. The lawyers felt that was stronger than the trade secret violation claims," he said.

"It came down to a focus on the largest claims," Chris Sontag, senior vice president and general manager of the SCO Source division said Monday. "It's a complex case and we wanted to simplify things and focus on the largest elements," he said.

The company said in early February that it intended to change its case, then saying only that the amendment "adds claims that have arisen since the filing of the case."

The amendment is the second since SCO filed an initial suit in March 2003, claiming that IBM misappropriated trade secrets related to its Unix license. SCO licensed the Unix operating system to companies including IBM after it obtained rights to the license in 1995. SCO first altered its case against IBM in June 2003, increasing the damages amount from US$1 billion to $3 billion.

With the latest amendment, SCO's damage claims will rise to $5 billion, Stowell said.

In a ruling on Wednesday, the court granted SCO leave to file its amended pleading.

IBM declined to comment on Monday's news. However, in a memo to the U.S. District Court for the District of Utah on Feb. 19, IBM said that SCO's amendments are meritless but that it did not oppose SCO's motion to amend, so long as it had leave to move against the amended pleadings.

The amendment is good news for the Linux community, because it shows that SCO had no evidence to back its claims that IBM had violated the company's trade secrets, said Bruce Perens, a noted Linux advocate and one of the founders of the Open Source Initiative.

Perens was skeptical that SCO would be able to win on any of its copyright claims, saying that despite repeated attempts, SCO had yet to prove that Linux violated any of SCO's copyrights. "They can make a copyright infringement complaint, but they're going to be unable to prove it," said Perens.

In a related announcement, SCO of Lindon, Utah, said on Monday that it had signed a license agreement with EV1Servers.Net, the hosting division of Houston company Everyones Internet Ltd. SCO will provide EV1Servers.Net with a site license that allows the use of SCO intellectual property in binary form on all Linux servers managed by EV1Servers.Net in each of its hosting facilities, the company said in a statement.

The deal, which was signed last week, came about after EV1Servers.Net was sent a warning letter from SCO telling it of the alleged intellectual property violations in Linux, said Robert Marsh, chief executive officer of Everyones Servers.

"I saw an opportunity to provide stability to our customers," Marsh said. "As we looked at the overall landscape of the marketplace," he added, "we elected to make a business decision to make a deal with SCO and thereby take ourselves out of the current fray, as well as take our customers out of the current fray."

Though Marsh declined to reveal the specifics of his company's deal with SCO, he said the EV1Servers.Net license will be a blanket site license covering thousands of Red Hat Enterprise Linux servers being housed at EV1Servers.Net's 65,000 square foot Houston data center, as well as the Linux servers being added to a new 45,000 square foot facility that EV1Servers.Net is opening, also in Houston, later this week.

The cost of the deal was "in the seven figure range," according to SCO's Stowell.

The hosting company was aware of the market uncertainty over SCO licensing, and wanted to remove that risk for its customers, Stowell said. "It was a business decision," he said.

SCO started its worldwide licensing campaign one month ago, and Sontag has been pleased with the uptake, he said. Denying that companies have been scared into taking up licenses by the threat of litigation, he said that they have "educated themselves on the issues. When they talk to us, they see that we have a strong point."