May 19, 2003 11:32 AM PDT

Microsoft sends message with Unix deal

Microsoft's licensing of rights to Unix technology from the SCO Group lends heavyweight backing to SCO's intellectual-property claims and helps Microsoft combat Linux, a growing marketplace threat to its operating system, analysts said.

SCO on Monday said that Microsoft has licensed from it the source code and a patent associated with the Unix operating system. The license ensures that Microsoft's software complies with SCO's intellectual-property rights and that the software giant can ensure compatibility with Unix software, according to a Microsoft representative.

The deal also appears to lend credence to SCO's charges that large parts of Unix source code have been copied into Linux. Microsoft's move may have a snowball effect, causing other companies to also strike licensing pacts with SCO, industry experts said.

SCO, based in Lindon, Utah, alleges that IBM inappropriately used technology from Unix in the Linux operating system and has filed a $1 billion lawsuit against the company. IBM, which is a major backer of Linux as an open-source alternative to Microsoft's Windows, has dismissed SCO's claims and says it has a valid license to Unix technology.

Chris Sontag, the general manager of SCO's intellectual-property division, said that the Microsoft licensing agreement reflects the strength of its intellectual-property (IP) suit against IBM.

Other industry experts said the Microsoft deal may be more notable for its public relations value. "The announcement really serves two purposes," RedMonk analyst Stephen O'Grady said. "First, it temporarily allows Microsoft to steal the moral higher ground from its Linux competitors; and second, it's a big fork in the eye to IBM."

A Microsoft representative said that the deal was simply in response to SCO's request. "Microsoft respects legitimate licenses, and Microsoft took that license (from SCO). That's it," the representative said.

But Microsoft's deal adds fuel to the fire over SCO's intellectual-property claims and helps the company financially to continue its case.

Terms of the deal were not announced. SCO's Sontag said previous licensing deals have brought between $8 million $10 million dollars in revenue to the company.

SCO's stock rose nearly 38 percent, to $6.55, in trading early Monday.

Hewlett-Packard, another proponent of Linux, is unaware of any intellectual-property infringement, according to a statement provided to CNET Sun Microsystems, which has lately been promoting Linux, says it is covered by its existing Unix licensing deals.

"(The license) allows Microsoft to leverage the fear, uncertainty and doubt that is moving around Linux," said Gordon Haff, an analyst at Illuminata. "This is a defensive move on the part of Microsoft, which isn't to say that the sales and marketing people won't take advantage of it."

Bruce Perens, who helped develop the Debian version of Linux and who is an unofficial spokesman for open-source programmers, said the licensing deal benefits Microsoft's anti-Linux stance and its attempt to foster fear, uncertainty and doubt--"FUD," in computing parlance--around Linux.

The deal also confirms his suspicion, he says, that the software giant has been a force behind SCO's legal push. Microsoft has denied that charge. "This benefits Microsoft more than anything else. Microsoft does a little Unix work, but not much," Perens said.

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"This is more of a symbolic act intended to intimidate other companies" into complying with SCO's royalty demands, Perens said. "From my point of view, it weakens (SCO's) case, because it seems that there has been collaboration with Microsoft (over Linux intellectual-property claims) from the start."

IBM on Monday said that Microsoft's licensing deal does not affect its stance.

"Our position is that we are licensed, we are compliant with the license, and we have to see how it all comes out in court," IBM spokeswoman Trink Guarino said.

But analysts said that IBM and other Linux purveyors are likely to consider options other than the courts, such as cutting a deal with SCO, in order to clear up what is becoming an increasingly ugly battle. SCO last week sent letters to 1,500 corporations warning them they could be liable for using Linux.

"I'm recommending that companies look to HP, IBM, SuSE, Dell and others for assistance," Forrester Research analyst Ted Schadler said. "In other words, this should not be General Motors' problem. It should be IBM's problem, just as it's always been in software (intellectual property)."

Heading off trouble
Analysts said the deal is a smart legal move for Microsoft because it deflects any potential suit that SCO could make against the Redmond, Wash., company on intellectual-property grounds. Microsoft developed its own version of Unix for Intel processors in the 1980s, and it still has Windows software that interoperates with Unix-based software.

Microsoft and the Santa Cruz Operation, predecessor to the SCO Group, have a history of legal entanglements. In 1997, the two companies settled a dispute, brought before the European Commission in 1996, over royalties that SCO had been paying to Microsoft for technology related to Xenix, a version of Unix for personal computers developed by Microsoft in the 1980s.

"Microsoft is trying to position themselves as lily-white in regards to intellectual property," Gartner analyst Tom Bittman said. "They're basically saying that they want nothing to do with this (suit)."

More subtly, Microsoft's maneuver takes a dig at the open-source software business model and the companies that are backing.

Microsoft general counsel and senior vice president Brad Smith said in a statement that the license represents the company's "ongoing commitment to respecting intellectual property (IP) and the IT community's healthy exchange of IP through licensing."

Microsoft has been troubled by the rise of the Linux operating system and of open-source software in general, which are maintained by independent software developers and given away at no charge. The GNU general public license (GPL) associated with open source is anathema to Microsoft's business model, which is based on commercial software licenses. Linux is now installed on roughly 27 percent of corporate servers and more than half of all Web servers, according to market researcher IDC.

By licensing Unix two months after SCO sued IBM, Microsoft can also draw attention to the legal issues that the SCO suit has triggered, analysts said.

Illuminating potential legal hitches associated with open-source software allows the software giant to ally itself with SCO without having to criticize the use of Linux, which has backfired for the company in the past.

"Microsoft has been warning people about IP issues for a long time," Gartner analyst David Smith said. "In many ways they're looking back and able to say 'I told you so.'"'s Ian Fried contributed to this report.


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