We know from SCO's Revised Supplemental Response to IBM's First and Second Set of Interrogatories [PDF] that The SCO Group claims RCU as one of its "Protected Materials." According to Wikipedia, RCU "is covered by U.S. software patent 5,442,758, issued August 15, 1995 and assigned to Sequent Computer Systems."

When The SCO Group announced that it had "licensed its UNIX technology including a patent and source code licenses to Microsoft® Corporation" (emphasis added), what patent were they talking about? Have we seen any other patented operating system technologies claimed by The SCO Group in this case besides RCU? Isn't it reasonable to ask whether they purported to license RCU to Microsoft?

In a June 2003 interview, The SCO Group's CEO Darl McBride stated:

When we take a top-tier view of the amount of code showing up inside of Linux today that is either directly related to our Unix System 5 that we directly own or is related to one of our flavors of Unix that we have derivative works rights over--we don't necessarily own those flavors, but we have control rights over how that information gets disseminated--the amount is substantial. We're not talking about just lines of code; we're talking about entire programs. We're talking about hundred of thousands of lines of code.

Where people get a little confused is when they think of SCO Unix as just the Unix that runs the cash register at McDonalds. We think of this as a tree. We have the tree trunk, with Unix System 5 running right down the middle of the trunk. That is our core ownership position on Unix.

Off the tree trunk, you have a number of branches, and these are the various flavors of Unix. HP-UX, IBM's AIX, Sun Solaris, Fujitsu, NEC--there are a number of flavors out there. SCO has a couple of flavors, too, called OpenServer and UnixWare. But don't confuse the branches with the trunk. The System 5 source code, that is really the area that gives us incredible rights, because it includes the control rights on the derivative works that branch off from that trunk.

From the FTC / DOJ Antitrust Guidelines for Collaborations Among Competitors:

Research & Development Collaborations. Competitor collaborations may involve agreements to engage in joint research and development ("R&D"). Most such agreements are procompetitive, and they typically are analyzed under the rule of reason. Through the combination of complementary assets, technology, or know-how, an R&D collaboration may enable participants more quickly or more efficiently to research and develop new or improved goods, services, or production processes. Joint R&D agreements, however, can create or increase market power or facilitate its exercise by limiting independent decision making or by combining in the collaboration, or in certain participants, control over competitively significant assets or all or a portion of participants' individual competitive R&D efforts. Although R&D collaborations also may facilitate tacit collusion on R&D efforts, achieving, monitoring, and punishing departures from collusion is sometimes difficult in the R&D context.

An exercise of market power may injure consumers by reducing innovation below the level that otherwise would prevail, leading to fewer or no products for consumers to choose from, lower quality products, or products that reach consumers more slowly than they otherwise would. An exercise of market power also may injure consumers by reducing the number of independent competitors in the market for the goods, services, or production processes derived from the R&D collaboration, leading to higher prices or reduced output, quality, or service. A central question is whether the agreement increases the ability or incentive anticompetitively to reduce R&D efforts pursued independently or through the collaboration, for example, by slowing the pace at which R&D efforts are pursued. Other considerations being equal, R&D agreements are more likely to raise competitive concerns when the collaboration or its participants already possess a secure source of market power over an existing product and the new R&D efforts might cannibalize their supracompetitive earnings. In addition, anticompetitive harm generally is more likely when R&D competition is confined to firms with specialized characteristics or assets, such as intellectual property, or when a regulatory approval process limits the ability of late-comers to catch up with competitors already engaged in the R&D.

(p.14,-15; footnotes omitted).

In a February 2004 appearance at Harvard, The SCO Group's CEO, Darl McBride stated:

[65:00]

McBride: [...]

When you dive down in and you do a thorough reading on all the contracts there, what you see on the license-back portion says that they received a license back to use the technology for a) internal purposes, or b) externally so long as it does not compete with the core products of SCO. And it's a substantial part of the value proposition of the packaged product. So, that becomes an interesting question. Our product is Unix. Does Linux compete with Unix? OK? That is going to be a question that the courts are going to be settling on that front.

From the FTC / DOJ Antitrust Guidelines for Collaborations Among Competitors:

A "competitor collaboration" comprises a set of one or more agreements, other than merger agreements, between or among competitors to engage in economic activity, and the economic activity resulting therefrom. "Competitors" encompasses both actual and potential competitors. Competitor collaborations involve one or more business activities, such as research and development ("R&D"), production, marketing, distribution, sales or purchasing. [...]

(p.2; footnotes omitted)

From those same guidelines:

Agreements Challenged as Per Se Illegal. Agreements of a type that always or almost always tends to raise price or to reduce output are per se illegal. The Agencies challenge such agreements, once identified, as per se illegal. Types of agreements that have been held per se illegal include agreements among competitors to fix prices or output, rig bids, or share or divide markets by allocating customers, suppliers, territories, or lines of commerce. The courts conclusively presume such agreements, once identified, to be illegal, without inquiring into their claimed business purposes, anticompetitive harms, procompetitive benefits, or overall competitive effects. The Department of Justice prosecutes participants in hard-core cartel agreements criminally.

(p.3)

Addamax v Open Software Foundation, 888 F. Supp 274 (D.Mass.1995):

The dispute is significant. As a percentage of the global market for operating systems, OSF's sales are so small as to be insignificant. The same may be said for OSF's purchases of security systems' technology. If, however, market share is calculated to include the purchases and sales made by the individual sponsors, the defendants collectively control significant shares of both markets.

The individual sponsors continue to make independent purchases and sales of security software and operating systems technology. As a result, OSF is merely an additional buyer of security systems technology and an additional seller of finished operating systems. Under these conditions, a court would not ordinarily consider the market power of the individual members of the joint venture in determining the market share of the alleged conspiracy. R.C. Dick Geothermal Corp. v. Thermogenics, Inc., 619 F. Supp. 441, 451 n.8 (N.D. Cal. 1985).

The essence of Addamax's complaint, however, is that OSF affects the industry by establishing de-facto industry standards, and the volume of OSF's purchases and sales are not of particular concern to the alleged conspirators. The leverage of the conspiracy, Addamax argues, is not market power as measured in purchases and sales. It is, rather, the simple fact that OSF's choice of technology amounts to an unqualified endorsement of that technology by seven or eight giants of the industry. Once OSF has blessed a particular technology by including it in a operating system package, competing technologies become obsolete.

The nature of the anticompetitive behavior alleged, coupled with the unique and unexplored characteristics of the market at issue, lead to the conclusion that Addamax has raised a genuine issue of fact with respect to the monopsony power of the conspiring defendants. Whether or not it is appropriate to aggregate the market power of the defendants in assessing market share, Addamax has put forth evidence that H-P and Digital were aware of, and in fact counted on, OSF's ability to influence the relevant markets. This alone might suggest a triable issue of fact with respect to the sponsors' collective market power.

(footnotes omitted)
(note: G2 Computer Intelligence)

See also: Addamax v Open Software Foundation 152 F.3d 48 (1st Cir.1998)

The Association of the Bar of the City of New York's Committee Report Antitrust "Market Power" and Intellectual Property: Why FTC and DOJ Action Is Necessary [PDF] states:

The use of intellectual property as a proxy for market power is particularly troublesome in the tying context given the currently confused state of tying law itself. Tying doctrine today is governed largely by the Supreme Court's decision in Jefferson Parish. That Court established as a threshold element to an unlawful tying arrangement a showing that there is significant market power in the tying product, such that the power is of "the degree or the kind" that enables the seller of the tying product to "force" customers to purchase the tied product. If such market power exists, then under Jefferson Parish the tying can be declared unlawful per se and no inquiry into the possible procompetitive benefits or efficiency justifications for the tie-in will be considered. The Court of Appeals ruling in United States v. Microsoft Corp. contributed substantially to the erosion of this per se rule by attempting to carve out what might be called a "technology exception" to that rule. Reasoning that in the "pervasively innovative" platform software industry, traditional per se analysis risks condemning ties that may be welfare enhancing and procompetitive, the D.C. Circuit declined to apply the per se rule to strike down Microsoft's "bundling" of Internet Explorer (the tied product) with the Windows operating system (the tying product).

The Microsoft ruling, though arguably inconsistent with Jefferson Parish, does accord with the tying analysis in the Guidelines, which reject per se treatment of tying even in the face of evidence of market power. Tying is likely to be challenged by the Agencies where "(1) the seller has market power in the tying product; (2) the arrangement has an adverse effect on competition in the relevant market for the tied product; and (3) efficiency justifications for the arrangement do not outweigh the anticompetitive effects."

In weighing the risks of investment in R&D against the strength of protection for the resulting invention, companies currently have the following guidance: The Supreme Court has said that if the tying product is protected by patent or copyright the existence of market power should be presumed. At least two federal appellate courts agree. The Agencies and some lower and appellate courts disagree, and treat intellectual property no differently from other property. The Supreme Court has said that, where all the elements of a tying claim have been met, it should be struck down as per se illegal without a balancing of any potential efficiency gains against harm to competition. The Agencies and some lower courts disagree, arguing that a rule of reason market analysis to measure net efficiencies is indispensable to achieving the welfare-maximizing outcome, particularly in hi-tech industries.

Such uncertainty leaves the law in this economically significant area in a state of turmoil and unreliability. Post-Jefferson Parish lower court jurisprudence provides little comfort. In Digidyne, the Ninth Circuit held that a copyright in an operating system was sufficient to trigger a presumption of market power in that product market, thus rendering the linking of sales of that operating system to sales of central processing units per se unlawful tying. Rather than analyzing whether customers, in this instance OEMs, had alternatives to the tying product, the Court expressly refused to review the record for "what it may reveal as to defendant's position in a defined market," and instead focussed only on considering whether the tying product was "sufficiently unique and desirable to an appreciable number of buyers...." Citing Loew's for the proposition that a copyright establishes such uniqueness as a matter of law, the Court concluded that the copyright "created a presumption of economic power sufficient to render the tying arrangement illegal per se." Not only did this analysis deem demand-side substitutability to be irrelevant in the face of a copyright, but, even if it existed, incapable of diminishing the "adverse impact on competition in the tied product".

(p.4,-5; footnotes omitted)

SCO's Second Amended Complaint against IBM [PDF] (text)

32. During the 1990s the enterprise computing market for high-performance workstation computers came to be dominated by UNIX and the primary UNIX vendors identified above, each supplying its own version of the UNIX operating system based on UNIX System V pursuant to the license agreements with SCO's predecessors in interest. UNIX became synonymous with "workstation" computers that typically operated on a RISC processing platform.

34. Most of the primary UNIX vendors identified above did not attempt to develop a UNIX "flavor" to operate on an Intel-based processor chip set. This is because the earlier Intel processors were considered to have inadequate processing power for use in the more demanding enterprise market applications.

36. Seeing this emerging trend, it became evident to SCO that Intel chips would gradually gain widespread acceptance for use in the enterprise marketplace.

39. Despite the early design constraint of Intel's limited processing power, SCO was able to develop a version of UNIX for Intel PCs with full multi-processing and multi-user support as well as excellent reliability. A PC running SCO's OpenServer UNIX was a much more viable business application platform than the same PC running any available version of Windows. SCO found an appropriate enterprise market niche for the early versions of SCO OpenServer as a highly reliable platform for business critical applications such as point-of-sale control, inventory control and transactions processing. Intel systems running UNIX were fully capable of performing multi-user business applications and could do so at a much lower cost (and just as reliably) as the proprietary mini-computer hardware sold by other UNIX vendors, such as Sun and IBM.

43. As Intel's prominence grew in the enterprise computing market, SCO's early version of OpenServer also grew into the operating system of choice for enterprise customers who wanted an Intel-based computing solution for a high volume of repetitive, simple computing transactions.

51. SCO was ready to offer large enterprise customers high-end UNIX computing platforms based on inexpensive Intel processors. Given the rapid growth of Intel's performance capabilities and Intel's popularity in the marketplace, SCO found itself in a highly desirable market position. In addition, SCO still had its SCO OpenServer business for retail and inventory-targeted functions, with its 4,000 applications.

53. As SCO was poised and ready to expand its market and market share for UnixWare targeted to high-performance enterprise customers, IBM approached SCO to jointly develop a 64-bit UNIX-based operating system for a new 64-bit Intel platform. This joint development effort was widely known as Project Monterey.

70. UNIX's value in the enterprise marketplace is largely a function of its reliability, extensibility, and robust performance capability. That is to say, it virtually never needs repair, it performs well under a wide variety of adverse circumstances, and it can be extended throughout an enterprise and across multiple processors to perform unified or disparate tasks in a seamless computing environment. Because of these features, UNIX-based equipment has replaced mainframe computers for all but the most demanding computing tasks. And, because UNIX-based equipment is far cheaper than mainframe computing equipment, a customer who cannot otherwise justify the cost of mainframe computers can otherwise gain the advantages of "supercomputing" operations through use of UNIX-based equipment.

72. UNIX gained this prominence in the computing marketplace because of twenty years of development and over one billion dollars invested by plaintiff and its predecessors to create a stable, reliable operating system to perform the mission critical work required by large enterprises.

74. Based on its value in the marketplace, UNIX has become the most widely used and widely accepted operating system for enterprise, institutional and manufacturing applications throughout the world.

(emphasis added)

This is just a sample of the paragraphs in their complaint where The SCO Group alleges an enterprise operating system market.

A market for journaling file systems seems to have existed, as shown by this June 1992 AT&T press release “UNIX SVR4.2 Journaling File System improves desktops, networks”:

The VERITAS Journaling File System is a subset of the original VERITAS File System (VxFS), an advanced, high- performance, high-availability file system widely adopted by UNIX system vendors worldwide for use in enterprise database and OLTP applications.

(Originally excerpted at IWeThey.)