[linux-elitists] SCO Teleconference transcript (Friday, May 30, 2003)

Karsten M. Self kmself@ix.netcom.com
Sat May 31 16:30:57 PDT 2003


Following is my transcript of the SCO conference call.

Any errors are mine.

This and an ogg of the call will be posted shortly to 

    http://twiki.iwethey.org/twiki/bin/view/Main/SCOvsIBM

Times correspond to the start of the recording.

If anyone could provide me with the proper attributions of:

    Robert Mania (?),  Cooper-Beech (?)
    Amy Hole (?), Hole(?) & Associates
    Kyle Kruger (?), Apollo Capital
    George Weiss (?), Gartner

I'm familiar with the other participants.

Further commentary to follow.


------------------------------------------------------------------------
SCO Conference Call
Friday, May 30, 1pm US/Eastern

00:00

Operator:  Good day ladies and gentlemen and welcome to the SCO Group
press conference.  Today's call is being recorded.  At this time for
opening remarks and introductions, I would like to turn the call over to
Mr. Blake Stowell(?).  Please go ahead.


00:14 

Stowell:  Thanks.  Thanks everyone for joining our call today.  I wanted
to just give you some background information before we get started.  We
are not making any of the materials that will be presented on the phone
today over the web, but we will have a recording of this teleconference
available within a couple of hours following the call.  I will turn the
time over to Darl McBride, our president and CEO, and Chris Sonntag is
also participating on this call, he's our senior vice president over at
SCOSource, our intellectual property division.  Ah, we will have a Q&A
following a statement which Darl will read, and then we'll take your
questions.  So with that we'll turn the time over to Darl.


00:52
McBride:  OK, thanks Blake.  

Thanks for joining us today.  Over the last few weeks a great deal of
confusion has been generated about SCO's enforcement actions and the
Unix operating system rights we own.  I would like to clarify these
matters.

01:07 

SCO's enforcement actions embodied in the suit against IBM and our
letter to 1500 commercial Linux users are based on the contract rights
that flow from SCO's 30,000 Unix System V licenses with more than 6,000
entities.  Our actions to date are based on this extensive set of
licensing and sublicensing agreements.  None of SCO's enforcement
actions to date have been based on copyrights or patents.  There has
been no assertion by Novell or anyone else that SCO does not hold these
contract rights.

01:45

As to the copyrights, I have two points to make.  First, the copyrights
are not important to our current enforcement actions.  Second, we have
stated in the past, and we reiterate today, that we own the Unix
copyrights and the rights to enforce these copyrights.  Novell has
publicly challenged our position with regard to copyrights.  We strongly
disagree with Novell's position, and view it as a desperate measure to
curry favor with the Linux community.  I have turned the Novell matter
over to our attorneys; over the coming weeks, we will take all steps we
deem appropriate to rectify the issues.

02:24

Some of you may be familiar with the text of the 1995 SCO-Novell
agreement, since it was contained in a prior SEC filing.  To underscore
to you the broad set of rights we hold, let me summarize a few of these
provisions.  Firstly, we own, this is SCO, SCO owns all rights in
ownership in Unix and Unixware.  All versions, and all copies, all
updates, including Unix and Unixware source code.  SCO owns all claims
arising against any parties relating to any rights, property, or assets
in the business of Unix and Unixware.  SCO owns all software and
sublicensing agreements, including the source code, and sublicensing
agreements with OEMs, end-users, and educational customers.  The total
number of these agreements is approximately 30,000.  Again, those were
pulled from the text of the agreement.  

03:27

Now let's move on.  Let me explain why SCO has decided to base our
initial enforcement actions on our Unix rights.  Among our Unix assets,
SCO owns all of the Unix licensing agreements and sublicensing
agreements.  There are approximately 30,000 such agreements with over
6,000 entities.  These licensees include virtually all major hardware
vendors, many software vendors.  These sublicensees include a very large
number of the of the Fortune 2000 companies, and many companies around
the world.   Each and every one of these licenses and sublicenses
contain a substantial set of rights and obligations for the licensee
and sublicensees.  These license agreements impose a standard of care
that applies not only to the company, but also to all of its employees.
These agreements address obligations that pertain not only to the
original source code, but also to the code embodied in the derivative
works produced by the licensee.  So in other words, significant portions
of SCO's Unix contract rights extend not only to the source code, 
but also to the many derivative works of that code.

04:43

The rights SCO holds in connection with these license and sublicense
agreements are substantial.  Because of their number and the the stature
of the licensees and sublicensees, the reach SCO has is broad and deep.
For these reasons, SCO has proactively chosen to base its current
enforcement actions on this set of rights.  We do not rule out the
possibility of subsequent enforcement actions taken on, on the basis of
copyright, but at this point we have elected not to do so.

05:14

A second question which was raised this week was whether SCO has
evidence of Unix System V and derivative code having found its way into
Linux and the Linux kernel.  The answer is a resounding "Yes!"

05:28

We have had three groups reviewing this matter for us over recent
months.  Each of these groups has come back independently with evidence
of Unix code and derivative code, methods, and concepts having been
improperly donated into Linux.  These findings are the subject of
ongoing litigation, so there are limitations to what we are able to
disclose, and under what conditions we may be able to disclose them.
Starting next week, we will provide viewing opportunities under
non-disclosure agreements, for our Unix licensees, as well as certain
software analysts and members of the press.  We hope this step will be
of benefit to the software community as they will have an opportunity to
see the tip of the iceberg of the evidence that SCO has gathered.

06:21

That is our prepared statement, ah, this point we will open it up for
some questions.

06:28

Voice:  Turn the time over to the operator.

6:32

Operator:  Thank you.  Ladies and gentlement, if you would like to ask a
question today, you may do so by pressing the star key, follwed by the
digit one on your touch-tone telephone.  Once again, that was star one.
If you are on a speakerphone, please make sure your mute function is
turned off to allow your signal to reach our equipment.  If at any time
you find that your question has been answered, you may remove yourself
by pressing the pound key.  Once again, that was star one to ask a
question, and pound to remove yourself.  We'll pause for only a moment
to assemble our roster.

07:08

We'll take our first question from Robert Mania from Cooper-Beech (?)
Capital.

07:13

Mania:  Yes, ah, good afternoon.  My question pertains to whether
or not this, your differences with Novell have impeded your ability to
settle your claims with IBM or any of the other large ah, companies out
there who you are currently negotiating with.

07:33

Sonntag:  Chris Sonntag.  Very simple answer.  We believe we have the
full rights to the Unix and Unix operating system business, and have all
rights to the source code, the contracts, and the claims, and the
business, which gives us the full authority to be able to to reach
agreements and conclusions and claims that we make with customers.

08:03

McBride:  All the things that we're working on today are directly fall
from the rights we have within our contracts, and so the answer is that
we have no problem reaching agreements based on the current discussions
we have going on.

08:20

Operator:  We'll take our next question from Maureen O'Gara,
with Client/Server News.

08:24

O'Gara:  What does it mean when you say that you turned the Novell
matter over to the attorneys to rectify the issues?

08:28

McBride:  As it relates to, ah, let's just be way up front on this whole
copyright issue.  As we've said very clearly, the copyright issues are
not important to our current enforcement actions.  And everything that
we're talking about in the marketplace.  This goes back to the last
question:  do we have the ability to go settle the agreements we have
based on the current contract rights?  Absolutely yes.  To the extent
that we looked at copyright issues down the road, wherein Novell is
making claims that are counter to our position, we are prepared to go to
get resolution on that.  And I can't say more about exactly what that is
right now, that's up to the attorneys, we'll be glad to let you talk to
them, they're not on the call today.

09:22

Operator:  We'll take our next question from Joe Barr with
LinuxWorld.com

09:26

Barr:  Hello.

McBride:  Hello Joe.

Barr:  SCO claims if I understand correctly, that they're being damaged
by the presence of their intellectual property in the Linux kernel.  If
that's true, are you not you contributing to that damage, to the ongoing
damage, by refusal to show the code?

09:46

Sonntag:  Well, the answer is we will be showing some of that evidence
starting next week,  and we are very confident in the evidence that we
have, we will be showing direct lines of code from our Unix and Unixware
source in Linux, in the Linux kernel.  We will also be showing
derivative works code that is not appropriate to be, ah, in Linux, that
we will also be showing, as well as exerpts from the appropriate
contracts to back up our claims.

10:22

Operator:  We'll take our next question from Dennis Powell with
Linux and Main.

10:25

Powell:  Good afternoon.

McBride:  Hello, Dennis.

Powell:  A couple of questions real quickly.  One is, it seems as if SCO
has pretty much rolled all the company dice on this one set of
litigation.  If you lose as, as many seem to think you will, then what's
left of the company?

10:45

McBride:  The ah, the business prospects for SCO right now are very
positive.  Last fall we set on a course to go down the path of enforcing
our rights in this Unix business.  There's only one company in the world
that can stand up and say that they own 30,000 contracts relating to
large OEM vendors of Unix and most of the Fortune 1000 or 2000 customers
that are using ah, Unix and one of our licensees.  It's an incredible
position to be in, and since we have started down this path, SCO's
business prospects have been going great.  We announced a couple of days
ago record earnings for the company.  Since we've gone back and really
re-enforced our position around Unix, and started re-enforcing our
rights.  We've gotten on a track that's not just the last couple of
quarters have been good, our prospects going forward are, are very
impressive.

11:54

Operator:  We'll go next to Amy Hole (?) with Hole (?) Associates.

McBride:  Good afternoon, Amy.

11:59

Hole:  Good afternoon Darl.  I'd like to try to understand the text that
you read from the Novell-SCO contract...

McBride:  Yes.

Hole:  When you bought the Unix code and source code.  I note that what
you were reading from did not specifically mention copyrights and
patents.  Is that simply what you chose to read off, or does it not
actually mention copyrights and patents in the contract that you signed
at that time?

12:28

McBride:  With respect to copyrights and patents, there are 56 pages of
Novell-SCO document there.  The majority of the contract very clearly
shows intent that all of the copyrights, contracts, relating to this
business are covered as relates to SCO going to market.  And with
respect to claims that Novell is making that don't reinforce that point,
we'll be settling those issues in, in court.  But let's go back and
reinforce:  our point right now is we've gone down a track that we don't
have any issues with copyright or patent with respect to any claims that
we have made.  It is a situation where you have a lot of things that you
could go out and do.  What happens is the contract rights that we have
are senior in position, and are so extensive and broad in their nature
that when you're holding a couple of aces it doesn't make sense to go
down and focus on a seven and a five that you might have in your hand.
Not to say that there's not some value in the seven and the five, but
clearly with our contract rights and the software license agreements and
the source code, we are holding aces and those are the hand that we're
playing.

13:45

Operator:  We'll take our next question from Hiayawatha Brey with 
Boston Globe.

13:50

Bray:  Ah, hello there, I'm still unclear on a couple of things.  You
said something a little earlier that seemed to imply that you are
standing by your view that you have the copyright for Unix, and that
what Novell is saying is flatly incorrect.  Did I read you correctly on
that one?

14:07

McBride:  We clearly have a dispute over that issue.  There are eight
pages or so, I can't remember how many pages, there are pages and pages
of copyrights that are part of the agreement that are covered under the
business that we aquired.  And so very clearly, there is contract
language here that says we have the copyright coverage to go out and
sell this business.  But let's go back to the copyright issue again,
which is:  this does not relate to the current actions that we have.  We
have the full right to go enforce the Unix and Unixware business.  The
source code, the contracts, the legal claims.  And so as, as you look at
that, the rights that flow from the contract are very strong relating to
where we are.  To the extent that we want to look at a copyright issue
down the road, we have our attorneys working on that issue, they'll work
on that with Novell, but that has zero percent to do with any current
claims that we have in the marketplace.

15:14

Operator:  We'll take our next question from David Politis with Utah
Tech Watch.

15:18

McBride:  Hello, David.

Politis:  Good morning, Darl, how are you?

McBride:  Good.

David:  Hey, uh, I'm curious.  You're a former Novell executive.  Were
you caught off-guard by this?  Were you surprised at what Novell did
this week?

15:32

[Garbled]

McBride:  Here is what was surprising, David.  We had a meeting
scheduled with Novell's executives, in this case their vice chairman,
Chris Stone, who said that he was going to come over and take a look at
the....  He had called the week before and said, you know, "what's going
about the source code you're claiming is inside Linux?"  And we said
"hey, come on over and we'll be glad to show those to you".  And so we
set up a time, the time was set for 11:00 on Tuesday.  Tuesday came and
went, or actually, 11:00 came and went, they didn't show up.  The
secretary called back and said, "Hey, did you ever talk to Chris?", no,
haven't talked to Chris yet, we're still waiting.  And then later on
that evening we found out that Chris had been busy putting a statement
together saying we need to have Novell, that Novell was demanding that
SCO step up and show us the code.  So that was the part that was a
little bit surprising.  On the day that we were supposed to be showing
them the code, we were set to do that.  The other part that was a little
bit dissapointing was the feedback that I had received later that Novell
had in fact timed the, their announcement to coincide with our earnings
release on Wednesday morning to try and screw that up.  

So, yeah, as a former Novell executive, yeah, we've had a relationship
with these guys for a long time, we, you know, have been working on
things, we have a relationship on this and other items, we've been
working on how to do a variety of things, and when we say Novell, I want
that the Novell people who are listening to this realize that I'm not
talking about all the people here in Utah County I've had eight-year
relationships with.  We have a couple of people who've kind of reversed
course here, and we're dealing with that.

But I guess the short answer to your question David, was:  yes, it was
a surprise.

17:35

Operator:  We'll take our next question from T.C. Doyle, with VAR
Business Magazine

McBride:  Hi, T.C.

17:41

Doyle:  Hi, all.  Thanks for taking my question.  Just a point of
clarification if I may.  At this juncture, based on what you've seen,
based the testing and the three groups that you've had looking at the
various codebases have done, is there any legitimate Unix code out there
that you can see?  Meaning:  is there any way anybody could be using the
Linux codebase in a legitimate fashion without violating what you guys
have?

18:08

Sonntag:  This is Chris again.  We have, you know, in, in our analysis
of a lot of the Linux source code, obviously we're dealing with multiple
versions of Linux over many years, and huge amounts of source code.  We
have mostly focused on the source code in the last couple of years, and,
you know, have only taken certain snapshots of certain areas, and just
about in all cases we've identified in every major version significant
issues for which we are concerned.  Is there extremely old versions that
may not be of issue?  We do not know at this time.  But, you know, we
hope to ultimately get our arms around all of the versions of Linux and
what may be of issue.  Yeah, We're specifically concerned, you know,
about version 2.4 and beyond of the Linux kernel.

19:09

Operator:  We'll take the next question from Kyle Kruger (sp?) with
Apollo Capital.

Kruger:  Ah, yes, can you comment, Darl or Chris, on Novell's assertion
that you have tried on several occasions to aquire additional
intellectual property rights?  I guess primarially the patents from them
over the last several months.

19:38

McBride:  Sure, I'd be glad to comment on that.  With respect to talking
to them about patents, that's a strange one.  Because many of these
patents actually go all the back to AT&T.  So the answer is we've never
had a discussion of anything about patents.  We have a 56...however many
pages agreement that is, with Novell, where it's very clear that Novell
sold to SCO the Unix and Unixware businesses.  And, and their, you know,
the fact that there's this one statement that's not directly in
allignment with every other part of the statements is what caused me to
approach them last year to, to try and get allignment.  There was never
a question of _purchasing_ anything, there was a question of clarifying
contract language that's there.  In fact, if you read the letter that we
sent the, Chris, I believe you sent it to them, it says...

19:28

Sonntag:  This letter clarifies the intent of the parties.

McBride:  So we sent them a letter, and asked them if they would sign,
you know, again, we've known these guys, and it was a question of, you
know, will, "would you clarify this", and if not, then, you know, we
still, it doesn't change the fact that the rest of the document is in
SCO's favor.  So that was all it was about, it was a clarification, and
there has never been once any approach with respect to purchasing
anything.  You know, you pay more than a hundred million dollars for
something, you don't have to expect to go back and pay for it again.

21:03

Operator:  We'll take our next question from George Weiss (?) with
Gartner.

21:09

Weiss:  Yeah, Hi.

McBride:  Hi, George.

Weiss:  I have a couple of questions if possible.  One is with regard to
the letter you said you're serving IBM with, and demanding that they are
in compliance with your contract otherwise you will revoke their license
in June.  

McBride:  Right.

Weiss:  What is the scenario or the process by which an outcome will be
brought to bear there if you don't have the full courtroom judgement by
that time, meaning that it is still a process in litigation and that
there is no judgement either for or against you?

McBride:  Yeah, and before you leave, George, ask your second one, I'll
cut off after this answer, so just....  You got your second one now?

Weiss:  The second question is whether Linus Torvalds and other people,
experts in the Linux community, have made any effort to collaborate with
you to review the code and put extra teeth into seeing if there is a
breech or misappropriation of SCO's code.  And whether there's any
possible resolution that if they were to find it, they could excise that
code and come back into compliance.

22:25

Sonntag:  Hello, this is Chris.  I'll go ahead and answer, George, your
first question.  And, with regard to the letter we sent to IBM, we sent
that on March 7th, the same day we filed the lawsuit.  Which, as we have
in our contract with IBM, we have the right to be able to revoke their
AIX license if they breech their contract.  We gave them notice that
they had breeched their contract and started that 100 day clock which
concludes on June 13.  We fully expect to follow through with demands of
that letter, and our legal team has a number of options regarding how we
will move forward beyond June 13, and we'll save that for that date.
Our hope that IBM will, you know, comply with our demands.

23:23

McBride:  With respect to the second question, we have not heard
anything from Linus Torvalds at this point.  In, in the last week we
have had other Linux community leaders contact us, and we have gone out
and said we're going to start making available the problems that are out
there in Linux.  I have had a couple of people that have picked up the
phone and called me.

23:50

Operator:  Ladies and gentlemen, due to time constraints, we will take
our final question from Stephen Vaughan Nichols with LinuxToday.

23:54

Nichols:  Hi there.  Two questions actually.  One is that in both SCO
and Caldera's separate history before they came together to form SCO,
first SCO through Project Monterey worked with IBM to merge Unix and AIX
together into a product AIX 5L for Itanium at the time.  A project which
came to naught as far as commercially concerned.  Also Caldera having
bought the source code from Novell, er, rather from SCO, Phipps Connolly
(?) in public statements then said that they were going to be working to
merge Unix and Linux together.  Therefore, both companies apart and then
together are on public record of trying to bring Unix functionality, and
one presumes, Unix code into Linux.  Until recently that was a main
thrust of Caldera/SCO's business.  That being the case, you have this
very mixed history here working together with Unix _and_ Linux, Unix AIX
and IBM.  In what way can you demonstrate that at some point or the
other that SCO engineers themselves did not, working on exactly what
their mission was at the time, trying to, merge the codebases together.

25:16

McBride:  So, it, it is an interesting history when you go back and look
at this.  And if you go back to SCO's history, for twenty years, the
original SCO, Santa Cruz Operation, was very focussed on Unix on Intel,
and built a great business in, in that regard.  Project Monterey was an
attempt by SCO and IBM, after IBM approached SCO, to try and get the
these...  to go to the next step on how this would all evolve.
Basically, during that period of time, SCO sidetracked its, its
independent efforts, got heavily involved with IBM, worked for two
years, and once the development project was done, essentially IBM walked
away from the deal.  And so we were left with picking up pieces.  At
that time, it's when the company was sold, you know, Santa Cruz
Operations sold that business to Caldera. 

26:14

Now, with respect to, ah, where we are in the business right now, the
thing that's, that's very powerful from SCO's perspective, is:  through
all of this we have maintained the core Unix ownership, and the thing
that we're talking about today is SCO owns the Unix operating system.
It has, it owns all the rights to the Unix and Unixware business,
including the source code, the contracts, all legal claims that come out
of this.  And so while on the Linux side of things, ah, you do have some
Unix on Intel capability that's showing up over there, there are
significant issues right now.  The, the Linux community that is in the
know on these issues, understands what the issues are.  They know that
there is code in there.  They know that there are contract issues.  I, I
think the reason that this has become such a big issue is because
everybody out there that really knows, understands that SCO has a strong
position.  And, and the question is:  how is this going to get resolved?
Is it gonna to get resolved by people ah, attacking, us and coming out
there and trying to, to shut us down, before this can be, ah, played out
in a full court hearing, or is, er, how _is_ it going to go forward?  We
know we have a very strong set of claims.  We feel very comfortable with
where we are in our position.  We understand that the, the heat is
intense from a number of folks, and the battle is fierce.  But we are
gonna to continue down this path because in the end, we have the legal
rights to do so, and it is our crown jewels.  This is what we're
fighting for.  

27:53

So, with, with all that said, we appreciate all of you joining us here
today.  The final statement I guess I would make is that:  as we go
forward, the month of June is "show and tell" time.  Everybody's been
clamoring for the code, you know, "show us two lines of code".  We're
not going to show _two_ lines of code, we're going to show _hundreds_ of
lines of code.  And that is just the tip of the iceberg of what's in
this.  We're not going to show all of the code because of the legal
issues that we have going on.  But we _will show you the code_.  Now, as
we go forward, you know, customers as, essentially, we have sent the
letters out to customers.  We have had customers clammoring for, uh,
being able to see the code, and the statements that are coming back in
is:  we need to understand: if the System V code is showing up inside of
the Linux kernel, then that is going to change the playing field.
Whereas initially we said this will come out at the appropriate time in
the court hearings, uh, well, we're going to start now to get that out
there.  Customers do not want to wait two or three years to wait and see
the code in the court hearings.  So we're being responsive to those
customer requests, and we look forward to that.  

29:15

And I guess the final thing that I would say is, uh, anyone who is a
Unix V licensee, who would be a hardware or software vendor, or who is
a sublicensee, who would be many major corporation around the world, we
will make every effort to accomodate being able to show you that code.
Media and analysts, a number of you have been asking for this, we will
show you as well.  It will have to be done under confidentiality
agreements, otherwise we are breaking our own agreements that this is
confidentially protected material.  To the extent that you can get those
sort of nondisclosure agreements signed on your side, then absolutely
we'll show you the same thing.  So we're stepping forward with the
request, the demands that have come in.  And again, starting next week,
going through the month of June, we'll be happy to show the code, and we
will go from there.

We're happy with the progress we've made today, we look forward to
moving things down the field, and thank you for joining us today.

30:19

Operator:  Once again, ladies and gentlemen, that does conclude today's
conference call.  Thank you for your participation, you may now
disconnect at this time.

[end]
------------------------------------------------------------------------

-- 
Karsten M. Self <kmself@ix.netcom.com>        http://kmself.home.netcom.com/
 What Part of "Gestalt" don't you understand?
    "Yes you will," enthused Zaphod, "there's a whole new life
    stretching out ahead of you."
    "Oh, not another one," groaned Marvin.
    -- HHGTG



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