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Wall Street's reaction Wednesday to


(HPQ) - Get HP Inc. Report

plan to indemnify Linux users from legal challenges from

SCO Group


supported the interpretation that H-P is giving little credence to SCO's suit over Linux open-source code.

Shares of SCO dove $1.69, or 9%, to $17.20 in recent trading. H-P shares were down 2.1% at $19.97 and shares of

Red Hat


, one of the major vendors of Linux software and services, declined 2.3% to $10.40 in recent trading Wednesday, when the company also held its analyst day.

H-P, the No. 1 platform for Linux, said this week that it would indemnify its Linux customers against any legal actions by SCO. SCO already has sued


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(IBM) - Get International Business Machines Corporation Report

, charging Big Blue with a breach of contract for misappropriating SCO's code in IBM's Linux business. SCO has written letters to Linux users asking them to pay for a Linux license but also suggested the previous refusal by Linux vendors to indemnify customers leaves it little choice but to sue users next.

H-P said it will take over any litigation or defend any claims on behalf of its clients who have acquired Linux on an H-P server or workstation as of Oct. 1, at no additional costs to customers.


H-P think they're not going to have to spend a lot of money, if any at all," C.E. Unterberg, Towbin analyst Katherine Egbert concluded about H-P's move to indemnify. "They aren't going to put themselves on the line for millions or billions of dollars."

"No. 2, H-P also says they're committed to Linux no matter what," she added. "It gets any customers who might have been concerned about SCO over that hurdle." Egbert does not cover H-P or SCO and just upgraded her rating on Red Hat to buy from market perform this week. Her company has done banking with Red Hat.

But SCO put its own spin on H-P's move.

"H-P's actions this morning reaffirm the fact that enterprise end users running Linux are exposed to legal risks," SCO said in a press release. "H-P's actions are driving the Linux industry towards a licensing program. In other words, Linux is not free."

H-P, however, disputed that charge. Martin Fink, H-P's vice president for Linux, said the indemnification program is not designed to drive the Linux industry toward licensing. "This is not at all a licensing program," Fink said in a phone interview Wednesday.

"This is really about removing the cloud" of a lawsuit, with the indemnification meant to send a message to Linux customers that H-P takes accountability for its Linux solution, he added. "We need to put our money where our mouth is," Fink said.

Fink would not comment on SCO's suit. "Our position so far is that we make no comment as to the validity of SCO's claims, and that's for the courts to decide," he said.

Jeff Neuburger, an intellectual property lawyer at the New York firm Brown Raysman Millstein Felder & Steiner, who has been following the SCO case, said H-P's actions may reveal more about the company's need to calm customers than its view of the case.

"I think it's more of a customer-relations initiative," Neuberger said. "I don't think you can conclude that the lawsuit has no merit."

But, he added, "They probably wouldn't be this generous if they thought the lawsuit had merit behind it."