Novell and Microsoft Collaborate III

Some additional information has been released since my last post on this topic, in the form of an 8-K filing from Novell. From the filing:
On November 2, 2006, Novell, Inc. (“Novell”) and Microsoft Corporation (“Microsoft”) announced that they had entered into a Business Collaboration Agreement, a Technical Collaboration Agreement, and a Patent Cooperation Agreement. This set of broad business and technical collaboration agreements is designed to build, market and support a series of new solutions to make Novell and Microsoft products work better together for customers.
Under the Business Collaboration Agreement, which expires January 1, 2012, Novell and Microsoft will market a combined offering. The combined offering will consist of SUSE Linux Enterprise Server (“SLES”) and a subscription for SLES support along with Microsoft Windows Server, Microsoft Virtual Server and Microsoft Viridian that will be offered to customers desiring to deploy Linux and Windows in a virtualized setting. Microsoft will make an upfront payment to Novell of $240 million for SLES subscription “certificates,” which Microsoft may use, resell or otherwise distribute over the term of the agreement, allowing the certificate holder to redeem single or multi-year subscriptions for SLES support from Novell (entitling the certificate holder to upgrades, updates and technical support). Microsoft will spend $12 million annually for marketing Linux and Windows virtualization scenarios and will also spend $34 million over the term of the agreement for a Microsoft sales force devoted primarily to marketing the combined offering. Microsoft agreed that for three years it will not enter into an agreement with any other Linux distributor to encourage adoption of non-Novell Linux/Windows Server virtualization through a program substantially similar to the SLES subscription “certificate” distribution program.
The Technical Collaboration Agreement, which also runs until January 1, 2012, focuses on three areas:
* Novell and Microsoft will develop technologies to optimize SLES and Windows running as guests on each other's operating systems.
* Novell and Microsoft will work together and with independent software vendors to develop management tools for managing heterogeneous virtualization environments, which will enable each party's management tools to command, control and configure the other party's operating system in a virtual machine environment.
* Novell and Microsoft will work together on ways to make translators available to improve interoperability between Office Open XML and OpenOffice formats.
Under the Patent Cooperation Agreement, Microsoft commits to a covenant not to assert its patents against Novell's end-user customers for their use of Novell products and services for which Novell receives revenue directly or indirectly from such customers, with certain exceptions, while Novell commits to a covenant not to assert its patents against Microsoft's end-user customers for their use of Microsoft products and services for which Microsoft receives revenue directly or indirectly from such customers, with certain exceptions. Both Microsoft and Novell have payment obligations under the Patent Cooperation Agreement. Microsoft will make an up-front net payment to Novell of $108 million, and Novell will make ongoing payments of at least $40 million over five years to Microsoft based on percentages of Novell's Open Platform Solutions and Open Enterprise Server revenues.
As you can see, quite a bit of money is flowing in from Microsoft to Novell. As this article points out, that money may be coming just in the nick of time:
This news comes just one day following rumors, still unconfirmed by Novell, that the Linux company had laid off some employees. In addition, Novell announced on Nov. 6, for the third time, that it was extending its deadline to get the holders of its Convertible Senior Debentures to not demand immediate payment of the total $600-million owed in 2024.
Wells Fargo Bank N.A. demanded the early payment in full when it claimed that Novell had defaulted on its payment agreement by not turning in its July 31 quarterly earnings report to the SEC in a timely fashion.
This, in turn, had been caused because Novell, like many other technology companies, has delayed its financial reports while it audits its past stock option practices.
It should also be noted that this does not appear to be a patent licensing agreement as some articles were calling it, but a revocable covenant not to sue. That's a big difference, but it's still unclear to me whether the agreement violates the GPL. I'd guess we'll hear more on that issue soon. In the end, on the Novell side this may have just been a move to keep the company going. It's harder to tell the motivation on the Microsoft side. It could be a way to incent Novell not to sue (which it looks like could have been a very real possibility on multiple fronts), it could be a play into a few new markets such as virtualization for Microsoft, it could be an attempt to subvert the Linux community or a variety of other things. I don't think it will be clear for a little while what the motivation(s) are, but as you may have guessed I'll be keeping my eye on this one.
–jeremy
Novell, Microsoft, MSFT, Linux, GPL, Windows, Open Source, virtualization