COMMENTARY -- Nearly two years ago, when SCO started dropping hints that it might sue customers, Sun's then executive vice president (now president and COO) Jonathan Schwartz started talking up the importance of indemnification and the fact that neither Red Hat nor IBM were offering indemnification when it came to Linux (see Protect Thyself 101: A primer on indemnification).
Since then, HP and Novell have announced Linux indemnification programs of their own, while Red Hat and IBM have steadfastly abstained from offering such programs, which in turn has drawn into question the importance of indemnification. (Rumor has it that IBM offers indemnification, but only to large customers with the leverage to demand it -- which many do.)
On the surface, SCO's lawsuits against companies like AutoZone and Daimler Chrysler appeared to demonstrate that all Linux users are at risk. But, upon closer inspection of SCO's filings, the defendants' use of Linux wasn't really SCO's beef.
Both Red Hat and IBM have insisted that the legal risks are overblown. On the other hand, if the risks are so overblown, what's the harm in providing indemnification -- since customers may never end up invoking it anyway? (Or does indemnification get carried on the company books in some onerous way? If you're an accounting expert, feel free to chime in to ZDNet's TalkBack.) Perhaps there is risk and Red Hat is too small to fully indemnify its customers. IBM, on the other hand, doesn't have a size problem.
Some observers suggest that the reason that IBM hasn't bought Red Hat or Novell is because of the potential liability connected with open source Linux. By maintaining its distance from Linux, IBM gets some legal insulation. IBM's explanation has been that by not becoming a Linux distributor, it's simply maintaining neutrality so that customers can choose between Red Hat and Novell, and that choice is always good for customers.
So, do customers need indemnification, or not? Today's announcement by Microsoft that the company will indemnify nearly all its customers suggests one or more of these three possibilities:
At a recent stockholder meeting, Microsoft CEO Steve Ballmer said, "We can stand behind our products in a way that open source can't, because they have no one standing behind them."
But, whereas Microsoft and Sun are emphasizing the importance of this legal protection, Dell -- which pre-loads Linux on its servers and which would technically be putting its customers at risk, if the risk exists -- is downplaying the importance of indemnification. In my interview of Paul Gottsegen, I asked the Dell vice president of worldwide marketing, via e-mail, whether Novell's offer of indemnification was a factor in Dell's decision to add Novell's SuSE Linux to his company's list of pre-load options that already included Red Hat Linux and Microsoft Windows. Gottsegen's reply: "The bottom line is that indemnification was a hot topic in the early part of the year but it doesn't seem to be on the front burner anymore."
Though it's hard to tell who's front burner Gottsegen was talking about (Dell's or its customers'), common sense suggests that indemnification may not be nearly as important to end-user customers as it might be to other technology licensees (in other words, vendors). For example, based on the text of a recently disclosed stand-still agreement between Sun and Microsoft, the way in which Microsoft has signaled its ability to sue licensees of OpenOffice is clearly articulated. But, as I said in my analysis of that agreement, the OpenOffice licensee that has the most to lose -- and the one that Microsoft would most like to break because of the damage done to the Windows Server business and that's now being done to MS-Office in Europe -- is Red Hat. As targets for intellectual property (IP) infringement lawsuits, it makes much more sense to sue competitors that are hurting you than existing or potential customers.
Indeed, the vulnerable licensees mentioned in the stand-still agreement technically include end-users. But, it's one thing to sue an end-user company, as the Business Software Alliance does on behalf of Microsoft, Adobe, Macromedia, Symantec and other vendors, for the direct and blatant pirating of your software. It's another to sue customers for using a technology acquired from a third party that might have your IP embedded in it. If you're a vendor, I can't think of a better way to lose customers than by holding a gun to their heads.
For example, SCO's recent difficulties on the revenue front suggest that customers aren't exactly flocking to SCO these days. If I were a customer looking for a solution provider, the last provider I'd want to turn to is one that threatens users the way SCO has. Microsoft understands this principle quite well. Whereas it might be able to sue users of OpenOffice on the basis that OpenOffice infringes on Microsoft's MS-Office-related intellectual property (regardless of the merit of its IP claims), Microsoft also knows it would have no hope of winning the business of those users once it sues them. If for no other reason than vindication, those users would turn to Office alternatives like Sun's StarOffice, IBM's Lotus Workplace, Corel's WordPerfect Office and offerings from upstarts Evermore and Gobe. Such suits would be a public relations disaster as well, which helps to explain why companies like Microsoft prefer to do their legal dirty work through the BSA, even when the misappropriation is obvious and intentional.
Bottom line: Suing existing or potential customers for IP infringement is not a good business strategy. So, Dell's Gottsegen may have it right. Then again, there are those big customers that demand indemnification from their solution providers -- including those that claim not to indemnify -- before signing on any dotted line. Is the indemnification issue a red herring? For companies (and consumers), size matters. Most users aren't worth suing and will never get sued. But for the Fortune 500 and multinational conglomerates with deep pockets, only time can really tell. Still, given the sort of revenue opportunity they represent, it's unlikely they'll ever get sued, either.
You can write to me at david.berlind@cnet.com. If you're looking for my commentaries on other IT topics, check my blog Between the Lines or my archives.
