HP protects Linux users; will other vendors follow?

By Maria Trombly | Securities Industry News | Sep. 29, 2003

Hewlett-Packard's announcement last week that it will indemnify Linux users against potential legal liabilities, starting Oct. 1, represents a major move that will aid Street firms in their migration to Linux and pressure other vendors to match HP.

"It's a good development," said Archipelago CTO Steve Rubinow, who expects to be using Linux in the near future. "It's one less impediment to its adoption."
In the last couple of years, the free, open-source Linux operating system has become an attractive alternative to pricey, proprietary Unix systems. Firms like Morgan Stanley, Merrill Lynch, Credit Suisse First Boston, Bear Stearns, Lehman Brothers, Goldman Sachs and E-Trade are all running Linux.

But the technology brings with it potential legal liabilities. Since anyone can contribute code to open-source projects, it can be hard to ensure intellectual property rights. This has led to a recent lawsuit in which Lindon, Utah-based SCO Group sued IBM for $3 billion--and demanded $700 per license from every Linux user.

HP's move alleviates all legal worries for Wall Street Linux users--or, at least, for those who are HP customers.

Rubinow said he would have gone with HP for its new Linux products whether or not the company indemnified Linux, because Arca has been a longtime HP customer. But he said HP should be lauded for the move--and that other vendors will now have to indemnify their users as well.

"If I were going to IBM, I would now say, You have to do the same thing,'" Rubinow said. "HP wouldn't be doing this unless they thought there wasn't much risk of huge judgments being rendered."

In addition to selling inexpensive hardware to run Linux on, HP also sells a number of versions of Linux, including popular distributions from Red Hat and Suse. All are covered under the new plan, according to Martin Fink, HP's VP for Linux enterprise servers and storage.

According to Fink, existing customers will need to sign an addendum to their support agreements before they are covered. Other requirements, for both new and existing customers, are that Linux distribution be sold by HP and run on HP hardware. In addition, if customers modify the Linux operating system themselves--which is possible to do with open-source software--then HP will consider those situations on a case-by-case basis.

Fink added, however, that only "one in 10,000" users actually modified his Linux source code.

Fink addressed reporters and analysts last Wednesday, calling on other companies who sell Linux products to indemnify their customers as well.

"Today's announcement is about accountability and protecting customers while other vendors sit on their haunches," he said.

He added that HP's Linux users would not only be protected against legal liability, but would also not need to pay SCO's license fees.

"We went through our internal due diligence and we made a conscious decision that this was a risk we were willing to take on behalf of our customers," he said.

Damon Kovelsky, an analyst at Framingham, Mass.-based Financial Insights, said he wasn't surprised by the move, and said other vendors would either have to follow suit or line up behind the protective shield of a big company like HP.

He added, however, that HP's announcement is notable mostly for its public relations value.

"One or two users might be breathing a sigh of relief," he said. "But the majority of Linux users know that the heart of the matter [in the lawsuit] is a few lines of code that can easily be changed."