SCO Group may have put Linux customers on notice Wednesday, but it still has legal hurdles to overcome in proving its legal case, and financing its legal crusade may not be easy either, experts said.

SCO told Linux users on Wednesday that they may find themselves in the crosshairs for using the open source operating system, sending letters to some 1,350 corporations warning that "Linux is an unauthorized derivative of Unix and that legal liability for the use of Linux may extend to commercial users."

SCO contends that portions of its Unix intellectual property have made their way into Linux illegally, and has backed up that claim with a $1 billion lawsuit against IBM. SCO's warning to Linux customers means the company's case against IBM is likely to be a closely-watched test bed for the company's ability to press its claims.

SCO's Chris Sontag, senior vice president and general manager of SCOsource, an arm of the company recently formed to license Unix System V libraries, announced Thursday that the company has plenty of evidence that the Linux kernel -- including the official version maintained by kernel.org -- contains illegally copied SCO UnixWare code. He claimed that some of the infringement pre-dates IBM's involvement with Linux, while other code is the result of the alleged infringement that led SCO to launch its suit against IBM.

To back up the company's claim, Sontag said SCO, within the next few weeks, will invite an independent panel, under NDA to inspect its Unix source code and Linux source code side-by-side.

However, the company said it will not show its evidence to other Linux distributors, at least not at first. "That's akin to saying, "Show me the fingerprints so I can clean them off." The Linux community would love for us to point out the lines of code. We're willing to show that under non-disclosure to select individuals, but the first time we show that publicly will not be in the open," SCO spokesman Blake Stowell told internetnews.com.

A Moot Point?
But even if SCO can prove that its intellectual property was added to the Linux kernel, its case is moot, according to Columbia Law School Professor Eben Moglen, pro bono publico general counsel for the Free Software Foundation. The Free Software Foundation maintains the GNU General Public License, under which Linux is distributed.

"There is absolute difficulty with this line of argument which ought to make everybody in the world aware that the letters that SCO has put out can be safely put in the wastebasket," Moglen told internetnews.com, noting that SCO distributed its own version of Linux with a kernel that allegedly contains Unix-derived code.

"From the moment that SCO distributed that code under the GNU General Public License, they would have given everybody in the world the right to copy, modify and distribute that code freely," he said. "From the moment SCO distributed the Linux kernel under GPL, they licensed the use. Always. That's what our license says."

Moglen noted that SCO cannot readily make the claim that it inadvertently released the code, because the GPL requires that when code is released under its auspices, the developers must release the binary, the source code and the license, and the source code must be able to build the binary. Presumably, then, the binary functions the way the creators want it to function and has the capabilities they want it to have.

"This isn't an inadvertent distribution case," he said. However, he noted that the Free Software Foundation works with companies to ensure that they do not release anything under the GPL that they do not intend to release. In fact, he said, when SCO first filed its suit against IBM, he approached SCO's lawyers because it is the Free Software Foundation and not IBM which holds the copyright to the Linux distribution IBM created, Linux for S/360. IBM created the Linux distribution but released it under the GPL and signed the copyright over to the Free Software Foundation.

Moglen said that when he approached SCO's lawyers he asked them to show him any problems with the particular Linux distribution and if there were any he would stop its distribution. "They have never responded to that invitation," he said.

He added, "We help people to solve problems with free software. If they would show us something, we would be happy to help them with it."

SCO's decision Wednesday to suspend distribution of its Linux may have been a recognition of Moglen's argument. "SCO is taking this important step because there are intellectual property issues with Linux," Sontag said. "When SCO's own Unix software code is being illegally copied into Linux, we believe we have an obligation to educate commercial users of the potential liability that could rest with them for using such software to run their business. We feel so strongly about this issue that we are suspending sales and distribution of SCO Linux until these issues are resolved."

Misappropriation Not Copyright Infringement
In any case, Moglen noted that nothing in the materials currently filed in SCO's case against IBM relates to copyright infringement, despite SCO's warning to Linux users.

Lindon, Utah-based SCO originally filed its case against IBM as a state case in Utah, and it only claimed misappropriation of trade secrets.

"They filed for misappropriation of trade secrets to get them in Utah state court rather than federal court," John Ferrell, founding partner and chairman of the intellectual property practice at Palo Alto-based law firm Carr & Ferrell LLP, told internetnews.com. "SCO being in Utah would have had hometown advantage over a large IT corporation."

He added, "so far, everything that has been filed has been state court claims relating to the misappropriation of Unix software secrets by IBM. The misappropriation comes down to the allegation that IBM, having rightful possession of Unix secrets, breached its duty of secrecy with SCO by conveying and transmitting those secrets to third parties. Those third parties were the members of the Linux community that were working on drivers and various other enhancements to the Linux operating system."

But IBM requested that the case be removed to federal court in Utah, thereby mitigating SCO's hometown advantage. On the other hand, it also opened the door for SCO, if it chooses, to file copyright infringement charges that it could not pursue in state court.

Financial Stakes
However, pursuing such a tactic also raises the financial stakes for SCO.

"A misappropriation case is not particularly expensive," Ferrell said. "To the extent that they begin to raise copyright infringement issues and patents are ultimately brought in -- which they could well be -- this could be an incredibly difficult litigation for SCO."

He noted that Lotus fought Borland for the better part of a decade over copyright infringement and patents. "Both suffered badly by the time it finished in the Supreme Court," he said.

But even if SCO can prove its charges, Ferrell said it is unlikely the company will back up its threats against commercial Linux customers.

"It's an axiom of law in business that it's not a great idea to sue your customers or your potential customers," Ferrell told internetnews.com. "In the event that they intend to sue customers, they may drive away potential customers of both their Linux business as well as their Unix business. I think they're going to be very careful before they sue customers. It's also easier to sue a few distributors or publishers or developers."

SCO has made it repeatedly clear that it intends to see its lawsuit against IBM through to the end. "Our full intent is to see this through all the way," Sontag told internetnews.com at the beginning of May. "We're well resourced to be able to do that."

But Ferrell questioned that assertion. He noted that Rambus is currently pursuing a similar suit against Infineon in Virginia. "They've announced that their litigation fees were in the order of about $2 million per month for intellectual property litigation," he said. "This is a big undertaking."

He also noted that the company was quick to show off its first net income on Wednesday, in the order of $4 million on revenue of $21 million, and that it may be financing its litigation fees with that income. "It will be interesting to see what their profit looks like next quarter," he said.

Buyout Ploy?
Given the hurdles that SCO will have to overcome in its legal battle, and the ill-will it is generating in the Linux community, why is SCO pursuing this case? Ferrell and Gartner Group's George Weiss, believe the company may be positioning itself as a takeover target.

"SCO's lawsuit can be construed as an attempt to raise shareholder value through claims of intellectual-property infringement or to pressure IBM into an acquisition," Weiss said in an April research note.