SCO's Unintended Consequences

The technology industry has a history of producing unexpected innovations. For example, email spawned spam. Apple's (Nasdaq: AAPL  ) Macintosh computer begat desktop publishing. And the Web produced e-commerce, which in turn gave birth to Amazon (Nasdaq: AMZN  ) , eBay (Nasdaq: EBAY  ) , and Overstock.com (Nasdaq: OSTK  ) .

So, it should come as no surprise that SCO Group's (Nasdaq: SCOX  ) lawsuit against the Linux industry has produced what could either be a profitable new market niche or a spectacular new scam: open source insurance.

According to technology trade journal InfoWorld, a New York-based start-up called Open Source Risk Management has decided to sell insurance to companies using open source software that fear they may be sued.

Insurance for the unexpected court date is nothing new. Journalists have had it for years. Doctors spend small fortunes on malpractice policies. But open source insurance just might be the legal equivalent of selling ice to Eskimos.

For one, the Open Source Development Labs (OSDL) has stitched together a $10 million legal defense fund for any Linux user to tap. An OSDL spokesperson confirmed that the organization has been in touch with DaimlerChrysler and AutoZone to offer assistance in defending against SCO lawsuits. Furthermore, published reports say that Hewlett-Packard (NYSE: HPQ  ) and Novell offer indemnification for users who don't alter the code in their Linux software.

As currently cast, open source insurance may be nothing more than snake oil. But it doesn't have to be that way. For example, there could be a market for insuring customers against open source software breakages. Because Linux isn't owned, it can be hard to find a responsible party to turn to when problems occur. And since fees for fixing broken software can be enormous, a hedge-like insurance could be attractive.

Hard as it may be to believe, SCO's pyrrhic volley against Linux has made the open source industry come together and mature quickly. Ultimately, that's good for customers, and probably for investors in Linux stalwarts like Red Hat (Nasdaq: RHAT  ) .

A lawsuit good for business? Only in America.

David Gardner has recommended both Amazon.com and eBay forMotley Fool Stock Advisorsubscribers. Curious as to what else made the cut? Check it out, risk-free, for six months.

Motley Fool contributor Tim Beyers has never filed a lawsuit, but he's been the victim of unintended consequences far too many times. He has no stake in any of the companies mentioned here. View his Fool profile here.


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