Open-source guru claims proof of MS-SCO link

Update: A document leaked from within SCO suggests financial backing from Microsoft goes much further than previously thought

An open-source group has published a memo leaked from within SCO Group that appears to point to a much more extensive financial relationship between Microsoft and SCO than has previously been known.

The memo suggests that Microsoft had a hand in a $50m (£27m) investment in SCO by venture capital firm BayStar Capital, something previously denied by BayStar. The document also says Microsoft directly or indirectly supplied SCO with more than $30m in other funding.

The memo is a 12 October, 2003, message from Mike Anderer, of strategic consultants S2, to Chris Sontag, vice president and general manager of SCOsource, which is SCO's effort to reap revenues from its Unix intellectual property. SCO's chief financial officer Bob Bench is listed as a "cc" recipient. It was published on Wednesday on the Web site of the Open Source Initiative (OSI), a non-profit group that promotes open-source software.

OSI president Eric Raymond, a prominent figure in open-source circles, who posted and annotated the memo, said it was a "smoking gun" proving Microsoft's backing of SCO. SCO acknowledged the authenticity of the memo but said its statements about Microsoft were a misunderstanding on the part of Anderer. Microsoft on Thursday repeated that it had no financial relationship with SCO other than an agreement to license SCO's Unix intellectual property.

The memo is largely a discussion of SCO Group's relationship with Microsoft, centring on the possibilities for obtaining licensing revenues and other funding "from them, their partners, investment bank referrals, etc".

The BayStar investment is mentioned several times, discussed as "a Microsoft referral" in one paragraph. Later the document says: "Microsoft will have brought in $86m for us including Baystar. The next deal we should be able to get from $16-20."

BayStar has repeatedly denied any Microsoft involvement in the $50m investment, announced on 16 October. While BayStar has dealt with Microsoft funding in other deals, the SCO investment involved only BayStar Capital and the Royal Bank of Canada, said BayStar in October. "I can tell you with great certainty that Microsoft was not involved with this investment," SCO spokesman Blake Stowell said at the time.

SCO is involved in a number of intellectual property disputes involving the Unix and Linux operating systems, and some have speculated that Microsoft and SCO have joined forces to head off Linux's success in the enterprise. Last July, for example, IBM eServer iSeries general manager sales Al Zollar told delegates attending the company's Asia Pacific Strategic Planning Conference in Queensland, Australia, that a "set of forces" including SCO and Microsoft was attempting to stymie adoption of the open-source operating system.

Conspiracy theories were given a boost when, last May, Microsoft agreed to join Sun Microsystems in licensing the rights to Unix technology from SCO. The move was seen by some as effectively funding SCO's war on Linux. Microsoft said the deal was part of Microsoft's commitment to respecting intellectual property.

SCO, which owns a disputed amount of Unix intellectual property, inherited the agreements by which inventor AT&T and its successors licensed the operating system to IBM, Sun Microsystems, Hewlett-Packard, Silicon Graphics, numerous universities and others. SCO has sued IBM for more than $5bn in damages, alleging Big Blue violated its Unix contract by moving Unix technology to Linux that it should have kept secret.

IBM denies wrongdoing and has countersued SCO for patent infringement. Meanwhile, Novell, a previous Unix owner, claims it owns Unix copyrights, forcing SCO to sue to establish ownership. And Linux seller Red Hat has sued SCO to try to establish that Linux doesn't violate SCO copyrights or trade secrets.

SCO argues that companies must pay for a SCO intellectual property license to use Linux and thus avoid legal action -- a licence that costs $699 for a single-processor server. On Monday, became the first company to acknowledge signing up for the programme.

CNET's Mike Ricciuti contributed to this report.