Statement Regarding Red Hat Lawsuit and Letters to Red Hat

Aug 04, 2003, 01:00 ET from SCO Group, Inc.

    LINDON, Utah, Aug. 4 /PRNewswire-FirstCall/ -- The following statement is
 being issued by The SCO Group, Inc. (Nasdaq:   SCOX):
      (Logo: )
      SCO has consistently stated that our UNIX System V source code and
      derivative UNIX code have been misappropriated into Linux 2.4 and 2.5
      kernels.  We have been showing a portion of this code since early June.
      SCO has not been trying to spread fear, uncertainty and doubt to end
      users.  We have been educating end users on the risks of running an
      operating system that is an unauthorized derivative of UNIX.  Linux
      includes source code that is a verbatim copy of UNIX and carries with it
      no warranty or indemnification.  SCO's claims are true and we look
      forward to proving them in court.
      Recent correspondence from SCO to Red Hat further explains SCO's
      The first letter is from Bob Bench, CFO of The SCO Group, Inc., to Mark
      Webbink, Sr. Vice President and General Counsel of Red Hat, Inc., that
      SCO intended to send to Red Hat.  After a conversation between Matthew
      Szulik and Darl McBride, Red Hat determined that SCO did not need to send
      this letter.
      The second letter is one that was sent to Matthew Szulik today from Darl
      McBride after Red Hat's lawsuit was filed.
      July 31, 2003
      Mark Webbink, Esq.
      Sr. Vice President and General Counsel
      RED HAT, INC.
      1801 Varsity Drive
      Raleigh, NC 27606
      VIA FACSIMILE: (919) 754-3700
      Dear Mr. Webbink:
      This letter is in response to yours of July 18, 2003 to Darl McBride,
      President and CEO of The SCO Group, Inc. ("SCO").
      Before responding to your request, it is important to place your letter
      in context.  Your letter follows on the heels of Red Hat's S-3 filing of
      July 7, 2003, in which your company revised its risk disclosure
      statement.[1]  In addition, SCO is currently engaged in litigation with
      International Business Machines Corporation ("IBM") regarding its role in
      the development of the Linux operating system.  At the time of your
      letter, we had expected the possibility of a global resolution of SCO's
      intellectual property claims against all Linux-related companies that
      would have likely included Red Hat.  This effort has apparently stalled,
      through no fault of SCO.
      Based on the posture of our litigation and your revised risk disclosures,
      it is unclear to us the purpose of your July 18, 2003 letter.  If you
      desire to enter good faith discussions to address SCO's intellectual
      property claims against Linux, either on behalf of a wider consortium of
      Linux companies or solely on behalf of Red Hat, we are willing to meet
      with you for that purpose.  In any such meeting, we will provide example
      after example of infringement of our intellectual property found in
      Linux.  Of course, any such demonstration must be pursuant to an
      acceptable confidentiality agreement and must be intended to further good
      faith discussions about resolving the differences between us.
      If you seek information for the purpose of informal discovery intended to
      benefit IBM in the pending litigation, or for the purpose of devising
      your own litigation plans against SCO related to Linux, we must
      respectfully decline your request.  Therefore, please clarify in writing
      the purpose for your request.  Thank you.
      Robert Bench
      Chief Financial Officer
      The SCO Group, Inc.
      [1] Red Hat states in the revised disclosure that it is "vulnerable to
          claims that [its] products infringe third-party intellectual property
          rights particularly because [its] products are comprised of distinct
          software components many of which are developed by independent
          parties."  The revised risk disclosure continues: "[M]uch of the code
          in [Red Hat's] products is developed by independent parties over whom
          we exercise no supervision or control ... [and Red Hat's] lack of
          access to unpublished software patent applications, copyright
          registrations which fail to adequately disclose source code, and
          numerous issued software patents that are of dubious validity ...
          Claims of infringement could require us to seek to obtain licenses
          from third parties in order to continue offering our products, to
          reengineer our products, or to discontinue the sale of our products
          in the event reengineering could not be accomplished on a timely
      August 4, 2003
      Matthew J. Szulik
      RED HAT, INC.
      1801 Varsity Drive
      Raleigh, NC  27606
      Dear Matthew,
      Attached is the letter I discussed with you during our July 31, 2003
      telephone conversation.  Instead of actually sending the letter, I
      thought it was best to telephone you and speak in person to see if we
      could resolve the issues between our companies short of litigation.  We
      left the conversation with a preliminary agreement to meet and continue
      our discussions further.
      To my surprise, I just discovered that your company filed legal action
      against The SCO Group earlier today.  You, of course, mentioned nothing
      of this during our telephone conversation.  I am disappointed that you
      were not more forthcoming about your intentions.  I am also disappointed
      that you have chosen litigation rather than good faith discussions with
      SCO about the problems inherent in Linux.
      Of course, we will prepare our legal response as required by your
      complaint.  Be advised that our response will likely include
      counterclaims for copyright infringement and conspiracy.
      I must say that your decision to file legal action does not seem
      conducive to the long-term survivability of Linux.
      Yours truly
      Darl C. McBride
      President & CEO

SOURCE SCO Group, Inc.