Novell deal to cost Microsoft hundreds of millions

It plans to spend $440M on licensing fees, sales costs

Microsoft Corp will spend more than $440 million in licensing fees and sales and marketing costs over the next five years to keep up its end of the historic Linux agreement it made with Novell Inc., according to U.S. Securities and Exchange Commission documents filed by Novell yesterday.

The two companies announced the surprise agreement late last week, billing it as an effort to "bridge the divide between open-source and proprietary source software," according to Microsoft CEO Steve Ballmer.

Under the deal, Microsoft has agreed to offer marketing and sales support for Novell's SUSE Linux and to co-develop technologies that will help customers integrate the competing operating systems.

Microsoft has also agreed to distribute 70,000 SUSE Linux subscription certificates so Microsoft customers can get SUSE updates and technical support from Novell.

But the most controversial component of the deal is a patent cooperation agreement under which Microsoft has promised not to launch patent lawsuits against Novell customers.

In a note published yesterday, Novell said the agreement amounts to a "covenant" between Microsoft and Novell's customers. But Linux advocates maintain that it is effectively a patent cross-licensing agreement between Novell and Microsoft. Such an agreement would be in violation of Linux's software license, the GNU General Public License, (GPL) which does not allow distributors to enter into exclusive agreements with patent holders.

Novell disputed this idea. "Novell's customers receive a covenant not to sue directly from Microsoft," the company said on its Web site. "We have not agreed with Microsoft to any condition that would contradict the conditions of the GPL, and we are in full compliance."

Free software advocate Bruce Perens said that this argument was unlikely to hold up in court and the fact that Novell is paying Microsoft more than $40 million as its part of the patent agreement only makes it obvious that the deal amounts to patent cross-licensing. "The financial consideration makes it even more clear that there is a patent licensing agreement for money going on here," he said.

The most likely candidate to sue Novell or Microsoft over an alleged GPL violation is the Free Software Foundation (FSF), which claims copyright to significant portions of the Linux operating system, Perens said.

FSF General Counsel Eben Moglen said he was looking into the Microsoft-Novell deal but could not comment on the documents released by Novell.

In the filings, Novell said Microsoft will make an initial payment of $240 million for the SUSE certificates and will also spend a total of $34 million on sales efforts, as well as $12 million per year on marketing over the life of the five-year agreement.

The patent agreement calls for Microsoft to pay Novell $108 million upfront and for Novell to pay Microsoft a percentage of revenue that adds up to no less than $40 million over five years.

Microsoft has also agreed that it will not engage in a similar certificate giveaway with another Linux distributor for the next three years. 

Copyright © 2006 IDG Communications, Inc.

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