Background
The suit has its roots at the Computer Systems Research Group (CSRG) at the University of California, Berkeley, which had a license for the source code of UNIX from AT&T's Bell Labs. Students doing operating systems research at the CSRG modified and extended UNIX, and the CSRG made several releases of the modified operating system beginning in 1978, with AT&T's blessing. Because this Berkeley Software Distribution (BSD) contained copyrighted AT&T UNIX source code it was only available to organizations with a source code license for UNIX from AT&T.
Students and faculty at the CSRG audited the software code for the TCP/IP stack, removing all the AT&T intellectual property, and released it to the general public in 1988 as NET-1 under the BSD license. When it became apparent that the Berkeley CSRG would soon close, students and faculty at the CSRG began an effort to remove all the remaining AT&T code from the BSD and replace it with their own. This effort resulted in the public release of NET-2 in 1991, again under the BSD license. NET-2 contained enough code for a nearly complete UNIX-like system, which the CSRG believed contained no AT&T IP.
Berkeley Software Design (BSDi) obtained the source for NET-2, filled in the missing pieces, and ported it to the Intel i386 computer architecture. BSDi then sold the resulting BSD/386 operating system, which could be ordered through 1-800-ITS-UNIX. This drew the ire of AT&T, which did not agree with BSDi's claim that BSD/386 was free of AT&T IP. AT&T's Unix System Laboratories subsidiary filed suit against BSDi in New Jersey in April 1990, a suit that was later amended to include The Regents of the University of California.
Read more about this topic: USL V. BSDi
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