Novell offers legal protection for Linux

Novell this week began offering SuSE Linux customers some legal protection for using the open-source operating system, the fourth legal umbrella to emerge from a computing industry grappling with legal threats brought by SCO Group.

Novell plans to offer the legal indemnification once its $210 million acquisition of SuSE is complete, a milestone reached early Tuesday. The closing of that deal paves the way for the completion of a $50 million investment in Novell from IBM, Novell said.

SCO's legal actions against Unix and Linux are rippling across the industry. But the Novell initiative highlights the response now under way. "It seems like there is a groundswell of support focused on pushing this issue aside," IDC analyst Al Gillen said.

Hewlett-Packard also offers indemnification. Red Hat has set up a legal defense fund to protect open-source programmers. And on Monday, Intel, IBM and MontaVista Software contributed to a $10 million legal defense that the Open Source Development Labs consortium set up to protect Linux customers against SCO.

Under Novell's plan, the company provides customers with protection from copyright infringement lawsuits to the tune of $1.5 million, or a factor of 1.25 of their software purchase price. To get the protection, customers must buy SuSE Linux and support from Novell and sign a licensing agreement, Novell Chief Executive Jack Messman said.

The program defangs SCO's threats for Linux customers, said Mark Radcliffe, an intellectual-property attorney with Gray Cary.

"It's going to make it more difficult for SCO to put pressure on licensees," Radcliffe said. "I assume that now Novell has done it, other people are going to have to do it, whether they like it or not."

Indemnifying a customer for 100 percent of their software purchase price is common, because lawsuit damages can be based on the plaintiff's lost profit, he added.

Novell's protection isn't the only program, but it's the only one to come from a company that itself has owned Unix. SCO Group says Linux violates the Unix operating system's copyrights. Novell believes it still owns key Unix copyrights.

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"We had unique rights regarding Unix that provide a very strong foundation for this indemnification program," Messman said in an interview.

"We've got a license to use the Unix technology with our Novell customers," he said. "That license allows us to use any Unix code that might be in Linux--we don't believe there is any--but if there is, we are allowed to use it and we allow our customer to use it."

Legal threats looming
Linux indemnification is not merely an academic issue. In 2003, SCO sued IBM for more than $3 billion, arguing that it moved Unix intellectual property into Linux against the terms of its Unix contract with SCO. And on Nov. 18, SCO said it planned to sue a Linux customer within 90 days, by mid-February.

The legal action is rattling the industry.

In response to customer requests, MontaVista has been providing briefings on legal issues around Linux, and it is engaged in "substantive discussions with key customers" about indemnification, said Bill Weinberg, director of strategic marketing for the company, which specializes in Linux for communications equipment and consumer electronics.

"The ubiquitousness of the SCO threat has meant the median size of the company asking this question has come down," Weinberg said, referring to questions about MontaVista's warrantee and indemnification programs.

SCO spokesman Blake Stowell criticized the industry's legal protection efforts--both indemnification and legal defense programs.

"While these vendors are offering legal compensation at their discretion to select Linux end users, it will not protect end users for legal penalties and statutory damages for violating SCO's copyrights," Stowell said.

SCO sent 400 letters in December to large companies that use Linux, warning them of legal action. One of the Linux users that SCO has sent a letter to and spoken with is search engine powerhouse Google, Stowell confirmed Monday. But he characterized the discussions as "low level."

Who owns the copyrights?
Because SCO has said Unix copyright ownership will be a basis for its legal action against Linux users, ownership of those copyrights is significant. Novell and SCO each claim ownership of those copyrights.

Unix was originally created by AT&T more than 30 years ago. Novell bought it from AT&T, then sold it to the Santa Cruz Operation in 1995 and 1996, which in turn sold it to the company now called the SCO Group in 2002.

Linux is modeled after Unix, making it easier for Unix customers to move to the newer operating system. Unlike most widely used versions of Unix, however, Linux runs on common and inexpensive computers using Intel processors.

SCO had to request what it needed to run its Unix business in order for the copyright transfer to take place, Messman said, "and they did not make a request."

SCO will have to take the matter to court if it wants to settle the issue, Messman added. "It's not in our court. We're not going to sue them," he said.

SCO argues that an amendment to the 1996 Asset Purchase Agreement indicates that the copyrights were transferred. Both companies say they have Unix copyrights registered with the U.S. Copyright Office.

Novell's legal foundation, which the Provo, Utah-based company plans to detail on its Web site by publishing its correspondence with SCO, has persuaded some.

"We were somewhat surprised by the indemnification, but after examining it, it looks like it would be based on a strong foundation, one that HP really can't match," said IDC analyst Dan Kusnetzky. "Novell can point to registered trademarks or registered copyrights and a long history of Unix."

A threat to Red Hat?
Novell's moves--the acquisition and indemnification--"could put Red Hat's dominance in the server and client operating environment market at some risk," Kusnetzky said. Novell has deeper financial resources and established relationships with many top customers.

"They are probably in a stronger position, because they indemnify users of specific versions of SuSE Linux, than Red Hat is. This would probably allow hardware suppliers to enter that market with much less fear of problems from SCO or others," Kusnetzky said.

Red Hat is confident its approach isn't broken.

"In the last quarter, we had more than 3,000 new customers," said Red Hat spokeswoman Leigh Day. "Our customers seem to be pleased with the direct relationship they have with us."

And Novell still has its challenges. For example, Microsoft has the company in its crosshairs again, and the Redmond, Wash.-based giant already has one resounding defeat of Novell under its belt, Kusnetzky said.

And Novell will have to move more quickly than it has in the past, Kusnetzky said. "That's going to be a challenge for Novell, because it's contrary to their previous corporate culture."