Tuesday
April 6
SCO’s lawsuit sends reminder to review contracts
04/05/2004 06:59 AM
By Thomas F. Holt Jr.
Software
Movers & Innovators
Biotech
Med Tech
Hardware
Internet
Telecommunications
Networking
Personnel
Finance
Defense
Education
Energy
Community
Real Estate
IP Law
Life Sciences
Intellectual Property Law
One type of open source software (OSS) license frequently
encountered by open source end users is the GNU General Public
License (GPL). The GPL grants licensees the right to copy, modify
and redistribute OSS source code so long as the licensee includes a
copyright notice and disclaimer of warranties. In other words, GPL
licensees receive no warranties or indemnities against any type of
intellectual property infringement of the source code. The GPL does
permit the licensor to offer its own warranty or indemnity, as
Hewlett-Packard, Novell and Red Hat offer to their Linux
customers.
The GPL also restricts upstream developers from enforcing their IP
rights against downstream licensees in certain respects. Parties not
privy to the GPL, however, can enforce their IP rights against those
downstream end users. For example, if an upstream user made
changes to the OSS code that infringe on a third party’s patent,
the patent owner could assert claims against the end user, even
though he had no knowledge of the originator’s copying.
In a suit filed against IBM and Novell, the SCO Group Inc. launched
broad attacks on the legality of open source software licensing.
SCO’s basic argument is that IBM stole source code from SCO’s
proprietary Unix and integrated it into IBM’s own Unix-based
operating system, AIX and Linux.
IBM originally licensed Unix from AT&T. SCO argues that, through
a complex succession of owners, it is AT&T’s successor in interest,
which would make SCO the licensor and IBM the licensee.
In its complaint, SCO has asserted claims of breach of contract,
unfair competition and copyright infringement and seeks $5 billion
in damages. SCO is also demanding licensing fees from thousands
of corporate Linux users.
American City Business
Journals
(news from 41 Business
publications around the
country)
IBM filed counterclaims alleging unfair competition and deceptive
trade practices, copyright infringement, patent infringement and
interfering with IBM’s prospective business relations and seeks to
enjoin SCO from claming ownership of Linux.
IBM also wants SCO to pay for damages suffered as a result of
SCO’s “fear, uncertainty, doubt” campaign against Linux. Initially,
IBM has asked SCO to advise as to which files and lines of source
code IBM is supposed to have misused or misappropriated. SCO
refused. A court ruling on this issue is still pending.
If SCO wins, the open source community could replace the
offending files or lines of source code. A longer-lasting effect may
be more litigation as more upstream developers try to assert their
IP rights.
From an end-user standpoint, this risk is not unique to OSS. The
SCO litigation should alert businesses to review their contracts to
determine if they contain warranty or indemnification protections
against third-party infringement.
For example, businesses that outsource technology or other
functions to service providers, or that rely on service providers to
host websites, databases or other applications, should determine if
they use Linux or other open source programs. If so, contracts
with the service providers should be reviewed to determine if they
contain warranty or indemnification protections against third-party
infringement claims brought against them relating to the service
provider’s use of open source software.
Where possible, new hosting, outsourcing and application service
provider agreements should be negotiated to include warranty and
indemnification protections against third-party infringement claims.
A typical non-infringement warranty might provide that the vendor
will supply a replacement or work-around for the infringing item. It
might also include an option for the licensee or service recipient to
quickly terminate the license, outsourcing, service provider or
other agreement if the infringement is not promptly remedied.
A typical indemnification provision would obligate the vendor,
licensor or service provider of the infringing item to indemnify the
buyer, licensee or service recipient against all costs and expenses,
including court costs and attorneys’ fees, of defending against and
resolving infringement claims.
In addition to direct contractual protections against infringement
claims, businesses may be able to obtain coverage for these claims
under insurance policies, which may cover both liability amounts
and defense costs incurred in connection with the claims. A
company’s comprehensive general liability policies may provide
coverage for lawsuits alleging infringement of copyright or other
intellectual property rights.
Thomas F. Holt Jr. is a partner in the Boston office of Kirkpatrick &
Lockhart LLP, a national law firm.