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SCO's year of living litigiously
The company is following the RIAA's lead and taking aim at users. Will it work?
February 24, 2004: 10:56 AM EST
By Eric Hellweg, CNN/Money contributing columnist

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SAN FRANCISCO (CNN/Money) - It's never a good sign for the tech sector when some of its biggest news involves lawyers, but that's been the situation so far this year.

The Recording Industry Association of America is leading the way again with a fresh round of lawsuits against 531 individuals accused of uploading music files to file-sharing services.

This time around, though, the RIAA isn't going it alone. Other companies -- most notably Microsoft (MSFT: Research, Estimates) and SCO Group -- are pulling pages from the RIAA's legal playbook and sending threatening letters to individuals they allege have infringed on their intellectual property rights.

The RIAA and Microsoft are getting the headlines right now (especially with the RIAA itself being countersued under federal racketeering laws), but from what I've heard, the biggest lawsuit of the year thus far is about to be filed.

This lawsuit could happen as early as this week, and it could be the tech sector's biggest suit since the first rounds of the RIAA lawsuits. That's because this time SCO is targeting Linux users -- not a Linux distributor or reseller.

Here's what we know: SCO will stand behind the plaintiff's podium, ably represented by David Boies, himself no stranger to the RIAA's playbook, having been on the losing side of the RIAA/Napster lawsuits. But the big question is, Who will be behind the defendant's stand?

SCO, with its lawsuits against IBM (IBM: Research, Estimates), Novell (NOVL: Research, Estimates), Red Hat (RHAT: Research, Estimates), and others, clearly likes to make a name for itself through its legal actions. Detractors say the company's legal strategy is little more than a gambit to boost its previously sagging stock price. And SCO's stock sure looks as if it hinges in large part on the outcome of its legal strategy. Need evidence? How's this: The low analyst price target on this stock for the year is $5, while the high target is $45.

One potential defendant is said to be Google -- a company with at least 10,000 servers running Linux, according to SCO spokesman Blake Stowell. Stowell says he can't comment on which companies SCO will sue, but that "you can expect something from us soon."

Will it work?

But does SCO really want to replicate the RIAA model? I'm not so sure that the RIAA's campaign has been all that effective, and furthermore, the RIAA has an advantage over SCO in this arena.

Whereas the RIAA could point to services such as Apple's (AAPL: Research, Estimates) iTunes Music Store and RealNetworks's Rhapsody as legitimate means for downloading songs, SCO's "legal" alternative -- persuading users to pay for licensing -- is untested in a court of law. It's not clear that Linux users are in fact breaking any intellectual property laws.

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Stowell says only, "We hope people will take us seriously as well and will compensate us."

SCO's threats of a user lawsuit are "part of an extremely carefully planned process of intimidation," says George Weiss, a VP at Gartner Research. "No one wants to be called into court, so users need to make a judgment. It's a major gamble for SCO."

SCO has already incurred the wrath of the open-source community; its servers bore the brunt of a recent virus attack, and its CEO now travels with bodyguards when he makes public speeches.

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SCO also faces another critical disadvantage vis--vis the RIAA: Despite the music industry's lawsuits, people are still buying music and Apple's iTunes is going gangbusters. But if SCO's legal strategy is shot down in the courts, do you really think companies will rush to buy its products? I think not.

It's the year of living dangerously for SCO, and its decision to borrow the RIAA's tactics and sue users -- before its case is proven in court -- could be the company's undoing.


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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.