SCO signs up first Linux licensee

A pragmatic analysis led the chief executive of EV1Servers.net to buy a licence that protects the website hosting company against Linux-related legal action from the SCO Group.

"Over the next 12 to 24 months, as this case makes its way through the court systems, we felt it was important to remove that uncertainty and deliver that stability and reliability to our customers," said Robert Marsh, chief executive and "head surfer" for EV1Servers.net.

On Monday, EV1Servers.net became the first company to publicly announce that it had signed a SCO intellectual-property licence. SCO says a "handful" of the world's 1,000 wealthiest companies also have signed licences to use Linux, but those companies aren't publicly identified.

"It seems to me that rational business people think about ways to reduce their exposure, and even if their exposure is very small, even if there's only a 1 per cent chance that SCO survives with something valuable, that goes into the calculation," said David Byer, a partner in the intellectual-property practice of Testa, Hurwitz & Thibeault.

But don't expect the Linux-licensing floodgates to open. Companies generally aren't taking SCO's licences, because the case is unresolved and is still in active litigation; because people are looking at legal protections offered by Novell, Hewlett-Packard and others; and because companies are "hoping and expecting and calculating that they're not going to be drawn into it," Byer said. "They'd just as soon sit on the sidelines and wait until the last possible moment to make the determination whether they need a lot of licences or not."

Marsh declined to disclose how much his company paid or whether it would get money back, if SCO loses its court cases.

SCO, which owns a disputed amount of Unix intellectual property, claims that Unix technology that should have been kept secret has been moved into the code for Linux, an open-source operating system that works in many ways identically to Unix. It's seeking licensing payments of $699 (£374) for each single-processor Linux server in use by a company and threatens legal action against those who don't pony up.

EV1Servers.net paid a lower price per server, because it had so many, SCO spokesman Blake Stowell said Monday. Although SCO sells two versions of Unix, the Linux market generates far more revenue; if SCO proves its case, it's a potentially huge source of money for a company that only recently edged into profitability.

SCO sued IBM for improving Linux, seeking more than $5bn in damages, but that's not the only legal entanglement. Linux seller Red Hat has sued to establish that Linux doesn't violate SCO's rights, and SCO has sued former Unix owner Novell in an attempt to overturn that company's assertion that it still owns Unix copyrights.

SCO's actions have shaken up a computing industry that has begun to enthusiastically embrace Linux, but growth is still strong. Linux server revenue surged 63 per cent to $960m in the fourth quarter of 2003, according to IDC.

EV1Servers.net decided to go public with its SCO licence, because it shares as much information as it can with its customers, chiefly smaller outfits whose websites require two to five servers, Marsh said.

"At the same time, we wanted to deliver certainty to our customers; we wanted to be up-front and honest with our customers," Marsh said. "We have scads of information about our company, our network and our products that are not generally available for our competitors... If we were to have done a deal and not shared that with our customers, that would have gone directly against our philosophy."

However, a company could be leery of announcing a licensing deal, because "there could be some negative publicity surrounding that, some of which we've already begun to see," Marsh said.

Signing the licence could have financial effects for the company, Gartner analyst George Weiss said. "If they're going to pay thousands of dollars in licence fees, their margins are going to feel it," he said. But the company might have been convinced that paying some money now was better than paying more money later, he said.

EV1Servers.net isn't financially tied to SCO, he added. "We don't have any stake in SCO, and we don't own any options on a personal or corporate basis. Nor are investors in our company investors in SCO," Marsh said.

The company has about 500 employees, hosts more than 1 million websites and is garnering revenue at a rate of about $70m per year, Marsh said.