Despite Peer Pressure, IBM Sticks To No Indemnification Policy

Acknowledging recent moves by the Open Source Development Labs, Red Hat and Novell to extend various forms of legal protections to their customers, IBM executives said they won't budge on the issue unless a court verdict pushes them in that direction.

"We don't see a basis for it," said Jim Stallings, general manager of Linux for Armonk, N.Y.-based IBM, claiming that the threat hasn't hurt IBM's Linux business. "There's incredible acceleration of Linux, in spite of the uncertainty and doubt."

"SCO hasn't proven its case," said another top IBM executive, Irving Wladawsky-Berger, a general manager at IBM. "That hasn't happened. We believe SCO's suit has zero merit. We're dealing with SCO in a courtroom. We don't think the issue should be tried in the media."

SCO filed a lawsuit in March alleging that IBM violated the terms of its contract with SCO by improperly donating Unix code to the Linux kernel. A Utah court is now evaluating the merits of SCO's claim.

Following that, SCO threatened Linux customers with legal action unless they paid the company a licensing fee and, more recently, claimed it intends to file a major copyright infringement case against a Linux customer by the end of February.

Hewlett-Packard was the first to formally step up to the podium and offer indemnification. Sun Microsystems also claims it offers indemnification.

IDC analyst Al Gillen said the policies calmed some customers nerves but that he hasn't seen any impact on sales of Linux-based servers since the lawsuit was filed. "Nobody needs indemnification unless a lawsuit is filed against an end user," he said. "The indemnification is reassurance for customers that they can go ahead and deploy and they have something to fall back on. People are paying a lot of attention to it, but they're not significantly changing their deployment plans."

According to IDC, Linux-based servers represented $743 million out of a total of $10.8 billion in server revenue for the third quarter of 2003, 50 percent higher than the same quarter a year ago. Meanwhile, Unix server sales represented $4.1 billion, and Windows-based servers came in at $3.4 billion.

"IBM made a particular business decision, trying to balance between the marketing benefits [of offering indemnification] and allowing for risk," said Gordon Haff, an analyst at Illuminata, a market-research firm. "IBM believes, and with good reason, that they're going to win."

Nevertheless, IBM insists it won't leave customers out in the cold should SCO make good on its threats. "The right thing will happen. Let it roll out," said Wladawsky-Berger. "It's definitely not buyer beware."