Darl McBride, the chief executive officer of SCO, said the company was determined to defend its Unix intellectual property which, it claimed, has been incorporated into Linux.
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"This is very significant," McBride said. "These are our crown jewels we're talking about."
For Linux suppliers, "the decision to continue to ship [Linux] would be at their own peril," McBride warned. SCO is "putting everyone on notice that this is tainted and that users are, potentially, carrying the risk".
The move follows SCO's 7 March lawsuit against IBM, in which it charged that IBM misappropriated code it had acquired during an ill-fated effort between the two protagonists to create a common Unix for the 64-bit Itanium chip architecture.
In its latest warning, SCO claimed that Linux's source code contained "illegal inclusions of SCO Unix intellectual property". SCO further claimed that commercial Linux customers could be legally liable for using this code.
"SCO owns the Unix operating system and, as we've been researching our suit against IBM, we've been doing our due diligence," said Chris Sontag, the senior vice president and general manager of SCOsource.
"We've started identifying more and more lines of code that are derived from our Unix System V source," he said.
SCO is moving development, sales and marketing personnel off SCO Linux projects, effective immediately, and "suspending any activities" it had with the UnitedLinux consortium.
UnitedLinux is an effort to develop and market a standard Linux distribution that was established last year by SCO and Linux vendors Conectiva, SuSE Linux and Turbolinux.
"Suspending any activities", however, does not mean that SCO is abandoning UnitedLinux. "We are not pulling out of UnitedLinux," because company lawyers advised against it, Sontag said.
Linux's creator, Linus Torvalds, is keen to see SCO's evidence. "I'd personally love to hear what it is they consider infringing, since I'd like to go back and see where it got adopted," he said.
Torvalds said that because of the open nature of the Linux development process, it is possible to track the origin of any section of the Linux kernel. "We've got all the history available and it should be easy to show when something was added," he said.
Sontag declined to comment on whether or not Torvalds, who owns the Linux trademark, would be ultimately liable, but he advised commercial users to seek legal advice about the use of the Linux operating system.
"We are only concerned about commercial use," he said, "Home or educational use, where there is no commercial benefit, we're not concerned about."
SCO Linux customers would not be considered liable for using Linux, said Sontag, although that protection would not cover SCO Linux customers who also ran other Linux distributions. "We can only hold them harmless for the product they purchase from us," he said.
Al Gillen, an analyst at market research firm IDC, said SCO was sabre rattling.
"I think this effectively ends their position as a member of the Linux community. I don't think the community will accept the SCO Group as a participant in the community anymore in any way, shape or form at this point. It's a one-way trip."
George Weiss, an analyst at Gartner, said SCO’s move "could potentially have some dampening effect" in the Linux marketplace, but he added that the company’s lawsuit against IBM had little impact so far.