<i>SCO v. IBM</i>: Does the Copyright Act Pre-empt The GPL?

Open-source software is a key e-commerce building block. For example, Apache, the world's most popular Web-server software, is open source. A lawsuit filed this year threatens not only the Linux operating system, but also the open-source license under which it is made available. This article addresses one of the legal theories attacking that license.

In March 2003, the SCO Group Inc. commenced a lawsuit against IBM in which it alleged theft of trade secrets and breach of contract (The SCO Group, Inc. v International Business Machines Corporation, D. Utah Case No. 03-CV-0294.)

SCO's damage claim is for $3 billion. At the heart of the lawsuit is the allegation that IBM misappropriated UNIX source code from SCO and contributed it to Linux. SCO's breach of contract claim relates to a 1985 license agreement between AT&T and IBM, to which there was an accompanying side letter (available at http://%20sco.com/ibmlawsuit/).

On July 20 of this year, SCO announced that it had registered the copyright to its UNIX code (see http://stacks.msnbc.com/news/941922.asp). Then, on Aug. 5, SCO announced a “SCO IP License for Linux,” which, for an “introductory” rate of $699 per CPU, authorizes Linux users to keep using Linux, notwithstanding the SCO proprietary code it might contain. SCO has also sent letters to 1,500 of the world's largest corporations, stating that it “intend[s] to aggressively protect and enforce” its intellectual property rights against companies using Linux without a license from SCO.

On Sept. 25, IBM filed amended counterclaims against SCO. One of IBM's counterclaims is that SCO breached the GNU General Public License (the GPL), the license under which Linux is made available to all, including IBM and SCO, as open-source software.

SCO answered IBM's amended counterclaims on Oct. 24. In its answer, SCO “denie[d] the applicability or enforceability of the GPL” (answer, para. 120) and, as affirmative defenses, alleged that the GPL “violates the U.S. Constitution, together with copyright, antitrust, and export control laws,” and that “IBM's claims are barred or preempted … by the laws of the United States.” The answer does not state clearly why SCO believes the GPL violates the copyright law, or what the basis of the pre-emption might be. SCO's reasoning may have been revealed, however, when SCO's lawyers spoke to a reporter from The Wall Street Journal, as the Journal reported on Aug. 14, that the GPL is invalid because it allows licensees to make an unlimited number of copies. According to these attorneys, this license term violates the Copyright Act, which allows users only a single back-up copy. Thus, according to SCO, the Copyright Act pre-empts the GPL. An exploration of the validity of this argument follows.

Background Facts

The GPL is a form of license agreement expressly intended to weaken copyright rights of authors who voluntarily publish software under that license. It is one of several forms of licenses intended to promote and facilitate distribution of open-source software. Among the GPL's unusual provisions are:

• Licensees must have access to the source code;
• Licensees must have the right to modify the source code;
• Licensees may make an unlimited number of copies of the source code; and
• If they choose to distribute modified versions, licensees must do so under the GPL.

Linux (or GNU/Linux) is an operating system that has been published under the GPL. IBM has made substantial contributions to Linux, also under the GPL. SCO has also been a significant distributor of Linux, and has such distribution under the GPL. Although SCO was also at one time committed to the open-source movement, it began to reverse its stance in 2001 when it purchased from Novell the rights to UNIX, a proprietary operating system. Novell had acquired UNIX from AT&T, which had previously licensed it to IBM.

According to SCO, it undertook a project with IBM called Project Monterrey, in which SCO and IBM were to create a 64-bit version of UNIX. According to SCO, IBM staffers who had access to SCO's UNIX code copied massive portions of UNIX and contributed them to Linux. IBM denies this allegation, and claims that SCO's publication of Linux under the GPL prevents SCO from now “offering” UNIX licenses to Linux users. IBM argues that SCO is, in effect, trying to charge Linux users a fee for the use of Linux, which it agreed not to do under the GPL. (For a broader discussion of the IBM counterclaims and their implications for Linux users, see Carey, SCO vs. the Linux world … what's a Linux user to do? at http://techupdate.zdnet.com/techupdate/stories/main/0,14179,2914464,00.html.)

Legal Analysis

In arguing that the GPL is invalid because it permits licensees to make multiple copies, the SCO lawyers must be referring to section 117 of the Copyright Act, which states:

“Notwithstanding the provisions of section 106, it is not an infringement for the owner of a copy of a computer program to make or authorize the making of another copy or adaptation of that computer program provided:

• that such a new copy is created as an essential step in the utilization of the computer program in conjunction with a machine and that it is used in no other manner, or
• that such new copy or adaptation is for archival purposes only and that all archival copies are destroyed in the event that continued possession of the computer program should cease to be rightful.

Section 106 of the Copyright Act, which section 117 qualifies, grants the owner of a copyright certain exclusive rights, including to reproduce or distribute the work and to prepare derivative works based upon it.

Section 117 has its origins in a report published by the National Commission on New Technological Uses of Copyrighted Works (CONTU), a commission appointed by Congress at the time of the adoption of the 1978 Copyright Act. CONTU's final report stated: “Because the placement of a work into a computer is the preparation of a copy, the law should provide that persons in rightful possession of copies of programs be able to use them freely without fear of exposure to copyright liability. … One who rightfully possesses a copy of a program, therefore, should be provided with a legal right to copy it to that extent which will permit its use by that possessor. This would include the right to load it into a computer and to prepare archival copies of it to guard against destruction or damage by mechanical or electrical failure. But this permission would not extend to other copies of the program. Thus, one could not, for example, make archival copies of a program and later sell some while retaining some for use.” (CONTU Final Report at 13.)

Section 117 was modified in 1998, but the changes did not modify the language concerning archival copies.

Turning Section 117 on its Head

The excerpt from the CONTU report above makes it clear that the archival copying provision of the Copyright Act was supposed to expand the rights of licensees, not restrict them. The language of Section 117 is by its terms a limit on the ability of a copyright owner to enforce its exclusive right to make copies. To argue, as SCO apparently is prepared to do, that section 117 limits the copyright owner's ability to authorize the making of more than one copy is to turn section 117 on its head. That section protects licensees. It was never intended to forbid the licensee from acquiring greater license rights than section 117 requires.

Also, the grant of rights in the GPL has little or nothing to do with archival copies. It is a grant of rights that includes, in effect, the right to sublicense to an unlimited number of sublicensees, but only on specific terms intended to ensure the continued existence of the work and its derivatives as open-source software. It is hard to imagine a court refusing to honor such terms simply because they are too generous.

SCO's Pre-emption Argument

SCO asserts pre-emption as an affirmative defense. In Bowers v. Baystate Technologies Inc. (Fed. Cir. January 29, 2003, cert. den., June 16, 2003), the Federal Circuit refused to apply the pre-emption doctrine in a copyright/software case in which Bromberg & Sunstein LLP argued in favor of that doctrine. In Bowers, the question was whether a license term containing a prohibition on reverse engineering was pre-empted by the Copyright Act. The defendant argued that:

• The license agreement was contrary to a general public policy that favors reverse engineering;
• Reverse engineering constituted fair use under section 107 of the Copyright Act; and
• Pre-emption of state law rights arising under the licensee agreement should therefore be pre-empted.

The Federal Circuit ruled against the defendant in a 2-1 decision. Thus, pre-emption of a license agreement is not available to a company that wishes to reverse engineer a software product, notwithstanding strong public policy arguments in favor of pre-emption. (The amici brief submitted to the First Circuit on behalf of numerous organizations and law professors, including The Electronic Frontier Foundation, is available at www.acm.org/usacm/Briefs/bowersVbaystatebrie.htm.)

Bowers v. Baystate Technologies represents a marked reluctance on the part of the Federal Circuit to hold that the Copyright Act pre-empts state law. It is hard to imagine that, despite this marginalization of pre-emption, the GPL's generous license terms permitting licensees to make and distribute multiple copies will be struck down as contrary to the Copyright Act. Bowers stands for the enforceability of license agreements, and the GPL is such an agreement. If SCO's copyright argument against the GPL remains consistent with the argument discussed in The Wall Street Journal, then it will most likely fail.

Open-source software is a key e-commerce building block. For example, Apache, the world's most popular Web-server software, is open source. A lawsuit filed this year threatens not only the Linux operating system, but also the open-source license under which it is made available. This article addresses one of the legal theories attacking that license.

In March 2003, the SCO Group Inc. commenced a lawsuit against IBM in which it alleged theft of trade secrets and breach of contract (The SCO Group, Inc. v International Business Machines Corporation, D. Utah Case No. 03-CV-0294.)

SCO's damage claim is for $3 billion. At the heart of the lawsuit is the allegation that IBM misappropriated UNIX source code from SCO and contributed it to Linux. SCO's breach of contract claim relates to a 1985 license agreement between AT&T and IBM, to which there was an accompanying side letter (available at http://%20sco.com/ibmlawsuit/).

On July 20 of this year, SCO announced that it had registered the copyright to its UNIX code (see http://stacks.msnbc.com/news/941922.asp). Then, on Aug. 5, SCO announced a “SCO IP License for Linux,” which, for an “introductory” rate of $699 per CPU, authorizes Linux users to keep using Linux, notwithstanding the SCO proprietary code it might contain. SCO has also sent letters to 1,500 of the world's largest corporations, stating that it “intend[s] to aggressively protect and enforce” its intellectual property rights against companies using Linux without a license from SCO.

On Sept. 25, IBM filed amended counterclaims against SCO. One of IBM's counterclaims is that SCO breached the GNU General Public License (the GPL), the license under which Linux is made available to all, including IBM and SCO, as open-source software.

SCO answered IBM's amended counterclaims on Oct. 24. In its answer, SCO “denie[d] the applicability or enforceability of the GPL” (answer, para. 120) and, as affirmative defenses, alleged that the GPL “violates the U.S. Constitution, together with copyright, antitrust, and export control laws,” and that “IBM's claims are barred or preempted … by the laws of the United States.” The answer does not state clearly why SCO believes the GPL violates the copyright law, or what the basis of the pre-emption might be. SCO's reasoning may have been revealed, however, when SCO's lawyers spoke to a reporter from The Wall Street Journal, as the Journal reported on Aug. 14, that the GPL is invalid because it allows licensees to make an unlimited number of copies. According to these attorneys, this license term violates the Copyright Act, which allows users only a single back-up copy. Thus, according to SCO, the Copyright Act pre-empts the GPL. An exploration of the validity of this argument follows.

Background Facts

The GPL is a form of license agreement expressly intended to weaken copyright rights of authors who voluntarily publish software under that license. It is one of several forms of licenses intended to promote and facilitate distribution of open-source software. Among the GPL's unusual provisions are:

• Licensees must have access to the source code;
• Licensees must have the right to modify the source code;
• Licensees may make an unlimited number of copies of the source code; and
• If they choose to distribute modified versions, licensees must do so under the GPL.

Linux (or GNU/Linux) is an operating system that has been published under the GPL. IBM has made substantial contributions to Linux, also under the GPL. SCO has also been a significant distributor of Linux, and has such distribution under the GPL. Although SCO was also at one time committed to the open-source movement, it began to reverse its stance in 2001 when it purchased from Novell the rights to UNIX, a proprietary operating system. Novell had acquired UNIX from AT&T, which had previously licensed it to IBM.

According to SCO, it undertook a project with IBM called Project Monterrey, in which SCO and IBM were to create a 64-bit version of UNIX. According to SCO, IBM staffers who had access to SCO's UNIX code copied massive portions of UNIX and contributed them to Linux. IBM denies this allegation, and claims that SCO's publication of Linux under the GPL prevents SCO from now “offering” UNIX licenses to Linux users. IBM argues that SCO is, in effect, trying to charge Linux users a fee for the use of Linux, which it agreed not to do under the GPL. (For a broader discussion of the IBM counterclaims and their implications for Linux users, see Carey, SCO vs. the Linux world … what's a Linux user to do? at http://techupdate.zdnet.com/techupdate/stories/main/0,14179,2914464,00.html.)

Legal Analysis

In arguing that the GPL is invalid because it permits licensees to make multiple copies, the SCO lawyers must be referring to section 117 of the Copyright Act, which states:

“Notwithstanding the provisions of section 106, it is not an infringement for the owner of a copy of a computer program to make or authorize the making of another copy or adaptation of that computer program provided:

• that such a new copy is created as an essential step in the utilization of the computer program in conjunction with a machine and that it is used in no other manner, or
• that such new copy or adaptation is for archival purposes only and that all archival copies are destroyed in the event that continued possession of the computer program should cease to be rightful.

Section 106 of the Copyright Act, which section 117 qualifies, grants the owner of a copyright certain exclusive rights, including to reproduce or distribute the work and to prepare derivative works based upon it.

Section 117 has its origins in a report published by the National Commission on New Technological Uses of Copyrighted Works (CONTU), a commission appointed by Congress at the time of the adoption of the 1978 Copyright Act. CONTU's final report stated: “Because the placement of a work into a computer is the preparation of a copy, the law should provide that persons in rightful possession of copies of programs be able to use them freely without fear of exposure to copyright liability. … One who rightfully possesses a copy of a program, therefore, should be provided with a legal right to copy it to that extent which will permit its use by that possessor. This would include the right to load it into a computer and to prepare archival copies of it to guard against destruction or damage by mechanical or electrical failure. But this permission would not extend to other copies of the program. Thus, one could not, for example, make archival copies of a program and later sell some while retaining some for use.” (CONTU Final Report at 13.)

Section 117 was modified in 1998, but the changes did not modify the language concerning archival copies.

Turning Section 117 on its Head

The excerpt from the CONTU report above makes it clear that the archival copying provision of the Copyright Act was supposed to expand the rights of licensees, not restrict them. The language of Section 117 is by its terms a limit on the ability of a copyright owner to enforce its exclusive right to make copies. To argue, as SCO apparently is prepared to do, that section 117 limits the copyright owner's ability to authorize the making of more than one copy is to turn section 117 on its head. That section protects licensees. It was never intended to forbid the licensee from acquiring greater license rights than section 117 requires.

Also, the grant of rights in the GPL has little or nothing to do with archival copies. It is a grant of rights that includes, in effect, the right to sublicense to an unlimited number of sublicensees, but only on specific terms intended to ensure the continued existence of the work and its derivatives as open-source software. It is hard to imagine a court refusing to honor such terms simply because they are too generous.

SCO's Pre-emption Argument

SCO asserts pre-emption as an affirmative defense. In Bowers v. Baystate Technologies Inc. (Fed. Cir. January 29, 2003, cert. den., June 16, 2003), the Federal Circuit refused to apply the pre-emption doctrine in a copyright/software case in which Bromberg & Sunstein LLP argued in favor of that doctrine. In Bowers, the question was whether a license term containing a prohibition on reverse engineering was pre-empted by the Copyright Act. The defendant argued that:

• The license agreement was contrary to a general public policy that favors reverse engineering;
• Reverse engineering constituted fair use under section 107 of the Copyright Act; and
• Pre-emption of state law rights arising under the licensee agreement should therefore be pre-empted.

The Federal Circuit ruled against the defendant in a 2-1 decision. Thus, pre-emption of a license agreement is not available to a company that wishes to reverse engineer a software product, notwithstanding strong public policy arguments in favor of pre-emption. (The amici brief submitted to the First Circuit on behalf of numerous organizations and law professors, including The Electronic Frontier Foundation, is available at www.acm.org/usacm/Briefs/bowersVbaystatebrie.htm.)

Bowers v. Baystate Technologies represents a marked reluctance on the part of the Federal Circuit to hold that the Copyright Act pre-empts state law. It is hard to imagine that, despite this marginalization of pre-emption, the GPL's generous license terms permitting licensees to make and distribute multiple copies will be struck down as contrary to the Copyright Act. Bowers stands for the enforceability of license agreements, and the GPL is such an agreement. If SCO's copyright argument against the GPL remains consistent with the argument discussed in The Wall Street Journal, then it will most likely fail.