LINDON, Utah-March 7, 2003-The SCO ®Group (SCO) (Nasdaq: SCOX), the owner of the UNIX operating system, announced today that it has filed legal action against IBM (NYSE:IBM) in the State Court of Utah, for misappropriation of trade secrets, tortious interference, unfair competition and breach of contract. The complaint alleges that IBM made concentrated efforts to improperly destroy the economic value of UNIX, particularly UNIX on Intel, to benefit IBM's new Linux services business.

...

As a result of IBM's unfair competition and the marketplace injury sustained by SCO, SCO is requesting damages in an amount to be proven at trial, but no less than $1 billion, together with additional damages through and after the time of trial.

"intellectual property" (is) a term that also includes patents, trademarks, and other more obscure areas of law. These laws have so little in common, and differ so much, that it is ill-advised to generalize about them. It is best to talk specifically about "copyright," or about "patents", or about "trademarks."

UNIX and SCO/UNIX compete with other proprietary programs and with "open source" software, which is software dedicated to the public. There are advantages of proprietary programs to end-users (including their proprietary functions in which their developers have invested large amounts of time and money). There are also advantages to open source programs to end-users (including that they do not have to pay for the program itself) and to software vendors (whom market the additional products and services that end-users who use open source programs ordinarily require).  This case is not about the debate about the relative merits of proprietary versus open source software.  Nor is this case about IBM's right to develop and promote open source software if it decides to do so in furtherance of its independent business objectives, so long as it does so without SCO's proprietary information.  This case is, and is only, about the right of SCO not to have its proprietary software misappropriated and misused in violation of its written agreements and well-settled law.

I have to say that this is not an issue regarding the Linux community. This is an issue between SCO and IBM. We don't have issues with people open sourceing or GPLing software that is independently derived and where there is no question of ownership. The isue we have is specifically with IBM, and specifically regarding contracts we have with IBM regarding their licensing of our intellectual property. I believe the issue and concern with the Linux community should be with IBM.

We are happy to see Linux succeed on its own merits utilizing the efforts of the community derived completely independently; and we have also made contributions to the Linux community of certain IP that we had that we thought was appropriate to be provided to the open source community.

However... we feel it is very appropriate for a business to defend its intellectual property. And that's a completely separate matter.

Yes, we have straddled the fence, as far as being in the Linux community and the UNIX community, and we'll leave it at that.

Giving the code to the Linux community? Yeah right, those AIX engineers don't even give the Linux engineers the time of day, let alone even let them so much as sneak a peak at the AIX code. SCO doesn't stand a chance of proving what never happens.

In a number of places in the complaint we reference statements made by IBM executives (regarding) transfer of AIX technology into the Linux community... This is in the face of the fact that they have agreements with SCO in terms of their licensing of UNIX System 5 technology, not to make any of those transfers, even of derivative works. They cannot even show the source code to anyone except those who have a valid license to view that source code, from us. I'll give you an example. Every time IBM wants to show the source code to any of their customers, they have to send their customer to SCO, and we make arrangements for them to obtain a UNIX System 5 license, so they can view the System 5 source code. Once they have that license, then they have the ability to view IBM AIX source code. And we do this several times a month. So there are portions of IBM that very much understand the requirements of the source code license they have with us. There are other portions of IBM that are making announcements about making wholesale movement of AIX source code, derived from our intellectual property... into the Linux community.

This isn't too surprising... The Canopy Group believes in intellectual property and they believe in protecting it. They also are not afraid to litigate. This has been a successful strategy for SCO in the past and companies remember success and try to repeat it.

My bottom-line analysis on this is that SCO has a fiduciary duty to take this action regardless of whatever philosophical beliefs management has on open source unless their investors specifically agree to an alternate strategy .

This case is not meant to proceed in court. It's designed as an exit strategy by Canopy Group from SCO and Caldera. With a present market cap of $22M for SCO, IBM has no incentive to settle. They could buy the company on the open market for less than the cost of any settlement. Microsoft could buy them to use their assets to continue to FUD Linux. Canopy group management wants to play IBM and Microsoft against each other to drive up the price of the company. IBM will be smart enough to poison that particular well by bringing counter-suits, probably ones good enough that MS will not want to buy the trouble. IBM will end up owning the SCO assets, and the Canopy folks will walk away with some ill-earned cash.

SCO is not desperate. Last week we had our first quarter earnings announcement, where we announced that for the first time in the history of the company we're EBITDA positive, and that although our revenues are significantly less than they were a number of years ago -- which is related to this lawsuit, and some of the damages we're seeking -- we are stable, we have still significant revenues, we expect our revenues to increase in the second quarter significantly, we have plenty of cash in the bank, and financially we're on a very sure footing.

I would have to respond by saying the Linux community is free to move forward with independently derived development, and I think in many cases that has happened, and it has been fair and reasonable. We're asserting in this lawsuit that some of what IBM has contributed into the Linux community was inappropriate and in breach of the contract that they had with us.