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SCO Terminates IBM's Contract for AIX Unix

The move intensifies a legal dispute over the rights of companies to the popular Linux operating system.

June 17, 2003|From Bloomberg News

SCO Group Inc. canceled IBM Corp.'s contract for the AIX Unix operating system Monday and revised a lawsuit against IBM to seek as much as $50 billion.

The amended complaint also seeks an order forbidding the sale of IBM's AIX operating system, SCO Chief Executive Darl McBride said.

SCO, which licenses Unix to thousands of companies, sued IBM in March claiming it had transferred Unix code into the related Linux operating system in breach of IBM's contract. The Armonk, N.Y., computer and software maker denies the claims.

"The meter is now ticking with respect to AIX," McBride said in an interview.

SCO is seeking from IBM "any amount they get from the AIX or related business lines" while the case is pending, an amount he said could run as high as $50 billion. AIX generated $2.8 billion in sales in 2002, SoundView analyst John Jones said.

IBM's AIX license is irrevocable, and there is nothing in today's action that changes that, IBM spokeswoman Trink Guarino said. IBM will continue to ship AIX and develop products, the company said.

SCO shares fell 28 cents to $10.93 in Nasdaq trading. Shares of IBM rose $1.75 to $84.50 on the New York Stock Exchange.

SCO's lawsuit could hamper the ability of IBM and dozens of other companies to market Linux, analysts said.

Today's move escalates SCO's legal action by expanding a previous demand of $1 billion in damages to $50 billion.

"For a fraction of that, IBM can buy SCO outright," said Carl Hoagland, an analyst with State Street Corp., IBM's largest shareholder.

"Why bother to play these games?"

Lindon, Utah-based SCO, worth about $134 million, bought Novell Inc.'s licensing rights to Unix for $145 million in 1995.

Novell, whose software is used to manage computer networks, last month challenged SCO's claims, saying Novell retains ownership of the Unix patents and copyrights. SCO maintains it has legal entitlement to them.

Linux is maintained and updated by a corps of volunteer programmers who make it available for free over the Internet. Companies such as IBM, Oracle Corp. and Red Hat Inc. make money from Linux by selling computers, software and services related to the operating system.

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