SCO Mulls Terminating SGI License

SCO laid the groundwork for the move -- which would extend to SGI the same source-code claims it has used in its US$3 billion suit against IBM (NYSE: IBM) -- with notification to SGI in August and last month's open letter that detailed SGI's alleged breach of agreement.

Analysts indicated a lawsuit could prove harmful to both sides. SCO would be spread thin suing both SGI and Big Blue while also fighting countersuits by IBM and Red Hat. SGI, meanwhile, might feel the effects of litigation in lost sales of its Irix operating system, which is distributed under the Unix license in question.

However, SCO spokesperson Blake Stowell, who said a month ago that SCO was discussing the matter with SGI, told LinuxInsider that the companies have not recently been in talks.

Warning of Termination

In a letter sent to SGI August 13th, SCO identifies four different areas of SGI's breach of contract with SCO, Stowell said.

Although he referred to SGI's contribution to Linux and its transfer of SCO's Unix System V source code -- the same claims SCO made against IBM -- as well as confidentiality breaches involving disclosure of the code, Stowell said SCO has not made a decision about whether or not to pull SGI's Unix license.

"It's not something we would consider until October 14th and not something we would do unless SGI refused to fix the violations of the agreement," he said, referring to requirements that include removal of contributions related to Unix System V by SGI and the Linux community.

Material Effect

Although SGI has said it believes its release of code as open source to Linux has been consistent with its Unix contract with SCO, the company warned in a U.S. Securities and Exchange Commission filing this week that it could lose the license.

"We believe that the SCO Group's allegations are without merit and that our fully paid license is nonterminable," the filing said. "Nonetheless, there can be no assurance that this dispute with SCO Group will not escalate into litigation, which could have a material adverse effect on SGI, or that SCO Group's intellectual property claims will not impair the market acceptance of the Linux operating system."

Yankee Group senior analyst Laura DiDio told LinuxInsider that SCO has been aware of "blatant SGI violations" for a year, and the lack of action thus far indicates SCO may not want to take additional legal action. "I don't think [SCO] wanted to do this," she said. "They wanted to keep it focused on IBM because they didn't want to bite off more than they could chew."

By aligning itself with the IBM side of the dispute, SGI might be putting SCO in a bind by forcing it to fight "a war on all fronts," according to DiDio.

Litigation Lineup

DiDio also said that while HP's (NYSE: HPQ) recent decision to indemnify its Linux customers from SCO's legal and licensing threats puts pressure on other companies to do the same, the various players involved -- Microsoft (Nasdaq: MSFT) and Sun on board with SCO's licensing on one side, and countersuits by IBM and Red Hat on the other -- are choosing sides.

DiDio said SGI appears to be leaning toward Big Blue's side of the dispute. The analyst also indicated that regardless of SCO's success, the indemnification issue appears to be here to stay.

"The fact of the matter is, SCO is one company," she said. "Even if the suit is dismissed, it does not preclude some other organization from filing suit on this; the GNU Linux GPL has never been challenged."

Clarification, Continued Irix

SGI told LinuxInsider that the company has responded to SCO's letter with a request for clarification about the license breach.

SGI said SCO is not talking to the company about litigation, calling the matter "a Unix license issue." Still, SGI said it will proceed with distribution of its Irix operating system.

On indemnification, SGI said it does not have plans to indemnify its customers "because we believe SCO's allegations are without merit."