SAN JOSE, Calif. The SCO Group said Tuesday (August 5) it wants $32 for each embedded system using Linux. That request stems from the Lindon, Utah company's claim that Linux versions 2.4 and above contains code that infringes on its Unix software.
SCO is currently suing IBM Corp. for breech of contract for allegedly supplying some of that Unix code as part of the open source development process for Linux.
After IBM, large businesses using Linux servers are SCO's first target. The company sent letters to about 1,500 large companies it believes could be running such servers. Through October, it will charge them $699 for rights to its Unix code for each single-CPU Linux server they operate, after that charge double.
In a less well-publicized part of the company's licensing terms, announced Tuesday (August 5), SCO said it will charge OEMs $32 per unit for each embedded Linux device they own.
The $32 fee applies to any embedded system regardless of whether it is a Tivo set-top box which uses embedded Linux or some models of the Sharp Zaurus which also use that kernel.
A diverse group of embedded systems that market watchers number in the millions currently use embedded Linux. They range from consumer and handheld systems to networking devices such as routers and firewalls, medical equipment and some military electronic systems use Linux. Venture Development Corp. pegs sales of embedded Linux tools and services at $62.6 million in 2002, a market growing at compound rate of 20.1 percent through 2007.
SCO will seek royalties from OEMs though it is not yet pursuing such companies actively, according to a company spokesman.
However, analysts said if the company is successful establishing its claims with server users, embedded systems could be the SCO's next target.
SCO's chief executive Daryl McBride did travel to Japan in July to make his case with eight consumer electronics companies there after they set up the CE Linux Forum. McBride met with at least on Fujitsu executive on that trip, the spokesman said.
"This situation is rather odd in a lot of ways," said Gordon Haff, a senior analyst at Illuminata (Nashua, N.H.). For instance, SCO was formerly Caldera International Inc., a Linux distributor and developer before it abandoned Linux to focus on Unix, Haff noted.
SCO has not detailed its infringement claims, but the company has shown a portion of its infringed Unix code to people willing to sign non-disclosure agreements. Haff claims if SCO did detail all the allegedly infringed code, developers could write new code to replace it, defusing the situation.
For its part, SCO claims it has lost to free Linux distributions substantial revenue it might have gained from Unix sales.
If SCO is successful in establishing its claims, "Linux would die," said Haff. But he doesn't expect that will happen.
"It's hard to say what will happen in a complicated legal case, but from my perspective this is a Hail Mary pass from a company that the market has passed by," said Haff.
It its most recent earnings report, SCO reported declines in product and services revenue in the six months ending April 2003 compared to the same period last year. However, those declines were offset by $8 in new licensing revenues. The company also turned a profit of $3.7 million in the recent period compared to a $17.6 million net loss for the year-ago period.
The embedded Linux licensing move "is extortion based on fraud. They are out to shake down people for what they can get," said Inder Singh, chairman of the Embedded Linux Consortium and chief executive of embedded Linux and real-time operating system maker LynuxWorks (San Jose). Neither the consortium nor his company has had any communications from SCO on the royalty demand, Singh said.
"We will wait until they show us something," that infringes their code, before taking any action on the licensing move, he added.