LINDON, Utah: When employees of software maker SCO Group Inc. showed up for work last week, they encountered something they had never seen in front of their headquarters -- a protest. As about 70 nearby enthusiasts of the Linux operating system demonstrated against the company's dispute with IBM Corp. and others, executives at SCO were preparing for a battle that could result in more legal fees than it could afford.

SCO contends that IBM, the world's largest computer company, introduced proprietary code from Unix into AIX, its own version of the platform, and later into Linux, an open-source software that can be copied and modified freely. SCO also sent a letter warning 1,500 big companies using Linux that they may be violating its Unix rights, drawing the wrath of open-source and Linux proponents.

"The trial may go on a number of years and we are prepared to do so," said Chris Sontag, a senior vice president in charge of SCO's Unix licensing efforts. SCO sued IBM for more than $1 billion in March and, after being rebuffed, revoked IBM's right to use and distribute software based on Unix earlier in June.

Sontag said that, based on IBM's yearly software revenue, the liability in the lawsuit could now be as high as $3 billion, a huge sum compared to the $3.8 million net profit SCO made in the first half of its current fiscal year.

While that's a turnaround from the $17.6 million loss of a year earlier, the company warned in a recent SEC filing that legal costs could hurt its profitability if litigation drags on. Chief Executive Darl McBride declined to comment on discussions with IBM, if any, but said he was hoping for a swift resolution. "The longer the litigation goes, the more it would benefit IBM," said Michael Overly, a partner in the Los Angeles office of Foley & Lardner.

Overly, who has no stake in the lawsuit, said intellectual property cases typically take two to three years and millions of dollars if they reach trial. In many cases, however, plaintiff avoid up-front legal fees by giving their lawyers a commission from a settlement or judgment in their favor.

SCO has hired David Boies, once the lead prosecutor in the Justice Department's antitrust case against Microsoft Corp., to argue its case. Microsoft, the world's largest software maker, recently said it licensed Unix rights from SCO so that it can create software in that format.

Unix, originally developed by AT&T Corp. for computers that are networked together, spawned numerous variants, including Linux and IBM's AIX. In documents shown to Reuters, portions of software code that SCO said were taken from its Unix system appeared in various Linux distributions. The company said some of the code was transferred over in its entirety, including original typographical errors.

SCO has refused to publicize the contentious code, however, arguing that revealing such details would allow its potential legal targets to alter their code and avoid liability. So far, IBM is remaining silent on the issue, saying its license to use Unix can't be revoked or terminated.

SCO, formerly known as Caldera Systems Inc., came to own the intellectual property rights to Unix after several complicated transfers in ownership. The company makes versions of Unix that run on Intel Corp.'s microprocessors, which are also the main platform for Windows and Linux.

Intel-based computers are generally cheaper than other high-end systems offered by IBM or Sun Microsystems Inc. and have been gaining ground among corporate users. Some industry experts see SCO's campaign as an attempt to gain a windfall settlement, most likely by selling itself to IBM or another industry heavyweight.

Previously, Caldera bought the rights to a DOS operating system and used it in 1996 to sue Microsoft and reach a settlement. DOS was the predecessor to Microsoft's Windows, which runs more than 95 percent of the world's personal computers.

Members of the Linux community have demanded that SCO reveal the code under contention, so that they can write their own software and "purify" their software while removing any liability. "We know that we didn't steal anything," said Jason Hall, a freelance programmer who was protesting outside SCO's headquarters. "If someone has (copied code) illegally, it should be taken care of."

© Reuters