Linux users incensed over Royal Bank SCO investment

Canada’s open source community is outraged over a decision by the Royal Bank of Canada to contribute towards a US$50-million investment in SCO Group.

BayStar Capital, based in San Francisco, said last Friday it has closed a private placement of non-voting Series A Convertible Preferred Shares in SCO, with a large portion of the funds coming from RBC Capital Markets. SCO said it would use the money towards the development of software and to help pay its legal and licensing costs.

Much of SCO’s legal bills are related to its multi-billion dollar lawsuit against IBM over its use of the Unix operating system, which SCO sells, and its allegation that it owns some of the intellectual property with the Linux operating system kernel. SCO has threatened to send invoices to companies using Linux and recently rolled out an Intellectual Property Licence for Linux software. IBM has since counter-sued, and SCO has also been hit by a lawsuit from Linux distributor Red Hat Software.

“”This is an irresponsible decision that the Royal Bank is making, both financially and morally,”” said Mike Gifford, co-founder of Ottawa-based Linux firm Open Concept Consulting. “”I can’t understand why any bank would decide it was a good decision to go off and invest in a failing company that’s pursuing a very weak legal argument against a community of developers.””

RBC spokesman Chris Pepper refused to explain the investment, or how it would respond to any potential complaints from customers who make their living selling open source products.

“”We have a policy of not commenting on anything we do for clients,”” he said.

SCO Group spokesman Blake Stowell said BayStar Capital is a private equity crossover fund that makes direct investments in late stage privately held companies, but he had few details surrounding RBC’s involvement.

“”I’m not sure who approached whom,”” he said.

Earlier this year a group of Linux users formed the Canadian Linux Interests Coalition (CLIC) with the specific purpose of campaigning against SCO’s Linux claims. Shad Young, CLIC’s president, said RBC’s investment was particularly shocking because a senior IBM executive sits on the bank’s board of directors.

“”Everyone in the organization is pretty horrified,”” he said, adding that some users are considering writing letters or even moving their RBC accounts over to CIBC, which pulled out its SCO shares in June. “”I think it caught people by surprise.””

Rod Giffin, president of IT consultant Giffin Scientific and a longtime Linux user, said it may be up to Canada’s open source community to provide more education about Linux to those at companies like RBC who make strategic investment decisions.

“”We have a huge role to play, and I think we’ve dropped the ball a little bit on that,”” he said, adding that only one of RBC’s recent technology investments could be described as an open source company. “”It didn’t factor into what they were looking at.””

Open Concept’s Gifford agreed, adding that the people at RBC who make the financial decisions would not be the same as the technical decisions.

“”It’s a complicated issue to try and boil down in a way that makes sense to people,”” he said. “”I imagine that RBC is using open source software . . . but they’re probably not aware of the political side of using open source.””

Stowell said SCO would not have suffered without the investment, since it already possessed some US$11 million in cash reserves.

“”Certainly we’ve accomplished many of the things we wanted to accomplish,”” he said. “”With a much greater investment, we can accomplish those things much faster. I think it has more to do with speed than ability.””

Giffin said RBC may simply be gambling that SCO will eventually win its case, and reap a potential windfall.

“”If you look at the value of their portfolio, US$30 million to them is kind of like if you and I made a bet worth $10 and one of us lost,”” he said. “”It would be embarrassing, but tomorrow it would be all over.””

— Illustration by Kara Anne Fraser


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