Microsoft 'offered to underwrite SCO funding'

Legal papers filed in the SCO vs IBM case claim that Microsoft offered financial help to BayStar
Written by Graeme Wearden, Contributor

Microsoft played a key role in encouraging SCO's ongoing legal campaign around the Linux operating system vendors and users, according to court papers filed recently.

An executive at BayStar called Larry Goldfarb stated in a court declaration that Microsoft's vice president of corporate development and strategy, Richard Emerson, had offered to underwrite BayStar's own investment in SCO.

"Mr Emerson and I discussed a variety of investment structures wherein Microsoft would 'backstop', or guarantee in some way, BayStar's investment... Microsoft assured me that it would in some way guarantee BayStar's investment in SCO," claimed Goldfarb, according to legal Web site Groklaw.

BayStar invested $20m in SCO in 2003, after SCO had launched its case in which it alleges that Linux violates Unix intellectual property. SCO sued Linux user AutoZone, Unix licensee DaimlerChrysler and Linux advocate IBM. It is also embroiled in a court battle with Novell, which claims that it never sold its Unix copyright to SCO.

The investment from BayStar and a $30m injection from the Royal Bank of Canada boosted SCO's funds from $6m to $60m. This helped the company finance its various legal actions.

BayStar's relationship with SCO floundered, though. It wanted SCO to focus totally on litigation, while SCO insisted on continuing its Unix business. By mid-2004 the two companies had parted.

In his Declaration, Goldfarb said that BayStar had sold its stake back to SCO because SCO's stock price was falling, and because the company was rapidly spending its cash pile. He also indicated that Microsoft had cooled on its earlier offer of support.

"Microsoft stopped returning my phone calls and emails," said Goldfarb. Emerson left Microsoft in 2003.

Goldfarb's claims may substantiate rumours that Microsoft was behind SCO's legal activities. BayStar admitted in March 2004 that it had been introduced to SCO by Microsoft, after a leaked email appeared to reveal that Microsoft was responsible for $86m of funding received by SCO.

"Microsoft will have brought in $86m for us including BayStar," stated the email, sent by Michael Anderer, chief executive of Salt Lake City venture firm S2 Partners, to SCO vice president Chris Sontag and chief financial officer Robert Bench.

Linux advocate Eric Raymond claimed the email was a "smoking gun" that linked Microsoft to SCO's activities. SCO, though, dismissed it as "simply a misunderstanding" and denied that Microsoft was involved in the BayStar transaction.

The case between IBM and SCO is being heard at the District Court of Utah, where IBM has asked for summary judgement against SCO's claims.

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