Parsing the details of the Microsoft-Novell pact

Novell dropped its annual report Friday and with it three exhibits offering details of its SUSE Linux pact with Microsoft. Two key points:A lot of the good stuff about the partnership was redacted, opening more questions.

Novell dropped its annual report Friday and with it three exhibits offering details of its SUSE Linux pact with Microsoft.

Two key points:

  • A lot of the good stuff about the partnership was redacted, opening more questions.
  • The third version of the General Public License seems to have some teeth--at least enough to worry Novell a bit.

And w

hile it's suspicious that Novell dropped these filings late Friday before a long weekend, I'll give the company a pass. The filings were ridiculously late due to stock options backdating so why make the Securities and Exchange Commission wait? Just get the filings over with already--it's not like we didn't know they were coming.

Now let's get to the money shot: Novell sees GPLv3 as a threat to its pact with Microsoft to resell SUSE Linux certificates. In the annual report's risk factors section, Novell notes that if "the Free Software Foundation releases a new version of the GNU General Public License with certain currently proposed terms, our business may suffer harm."

To a degree that risk is known already. The FSF has made it clear the Microsoft-Novell deal is a target. Meanwhile, GPLv3 isn't a matter of "if" as much as it is "when" it becomes more than a draft.

The big question is how will the GPL will affect Novell's gravy train--Microsoft. The big threat comes if GPLv3 impacts the patent agreement between Microsoft and Novell. Here's what Novell had to say:

On November 2, 2006, we announced a new relationship with Microsoft. Among other things, Microsoft agreed to make covenants with our customers not to assert its patents against them. Microsoft also purchased coupons that it can distribute to customers who can in turn redeem them for subscriptions to SUSE Linux Enterprise Server. The FSF criticized our deal with Microsoft because it only provides patent protections for our customers rather than for all licensees of GPL software, and on March 28, 2007, the FSF released a new draft of GPLv3, known as “Discussion Draft 3,” that includes provisions intended to negate at least part of our Microsoft agreement.

Discussion Draft 3 includes a term intended to require Microsoft to make the same patent covenants that our customers receive to all recipients of the GPLv3 software included in our products. It also includes a license condition intended to preclude companies from entering into patent arrangements such as our agreement with Microsoft by prohibiting any company that has entered into such an arrangement from distributing GPLv3 code. This license condition does not apply to arrangements entered before March 28, 2007, so as currently proposed it would not apply to our agreement with Microsoft; however, the FSF specifically indicated that this “grandfathering” condition is tentative and may be dropped depending on feedback the FSF receives.

If the final version of GPLv3 contains terms or conditions that interfere with our agreement with Microsoft or our ability to distribute GPLv3 code, Microsoft may cease to distribute SUSE Linux coupons in order to avoid the extension of its patent covenants to a broader range of GPLv3 software recipients, we may need to modify our relationship with Microsoft under less advantageous terms than our current agreement, or we may be restricted in our ability to include GPLv3 code in our products, any of which could adversely affect our business and our operating results. In such a case, we would likely explore alternatives to remedy the conflict, but there is no assurance that we would be successful in these efforts.

The takeaways from that passage:

  • Novell may not get the payola it's getting accustomed to from Microsoft;
  • It's clear that Microsoft's patent statements are really about calling a GPLv3 truce;
  • Novell has to be worried since I'd argue that the Microsoft pact is one of the big reasons SUSE Linux is getting traction in the enterprise.

Here are some other key points from the various exhibits filed along with Novell's annual report:

Exhibit 10.33--The technical details:

The technical documents spend a lot of type talking about Microsoft's virtualization technology, Viridian. The general idea is that SUSE Linux would plug into the Viridian HyperCall API--when it's released of course. This agreement is basically theory since Microsoft can't even get its virtualization technology into its own products, notably Longhorn Server.

Nevertheless, Novell and Microsoft say they'll develop some virtual machine test plan. All dates related to delivering virtualization technology are redacted.

The part on optimizing SUSU Linux Enterprise Server on Windows is heavily redacted. Let's play fill in the blanks (*** means it's redacted):

Microsoft will deliver the Microsoft Virtual Machine Linux Additions in Source Code form to Novell by no later than ***. The parties acknowledge that, as of the Effective Date, the other Microsoft Optimization Deliverables are under development. As of the Effective Date, Microsoft anticipates delivering the other Microsoft Optimization Deliverables around *** but in any case will deliver them to Novell once Microsoft’s development contractors have completed them and Microsoft has completed its quality testing. If, however, Microsoft’s development contractors fail to deliver such Microsoft Optimization Deliverables to Microsoft by *** and Microsoft is unable to obtain such delivery from the development contractor by *** , then Microsoft will (in its sole discretion) either promptly complete such Microsoft Optimization Deliverables itself and deliver them to Novell *** following *** , or will hire another development contractor (which could include Novell) to promptly complete such development work on Microsoft’s behalf. Upgrades to the Microsoft Optimization Deliverables shall be delivered to Novell (in Source Code form) as specified in Section 3.5.

The two parties will build an innovation lab somewhere between Boston and New York City. Judging from the document "asterisks" are picking up the tab:

Microsoft and Novell will agree on how to fund the Lab’s operations. *** will endow the Lab, over the course of the Term, with *** , as needed, for mutually agreed upon *** such as *** shall pay *** of this amount to *** within *** of Agreement execution. The remaining amounts of the Lab funding be shall used and paid as mutually agreed to by the parties.

My hunch: Microsoft is paying the bills.

Apparently, Microsoft doesn’t want you to know much about Office Open XML. Check out this passage (holy redactions Batman):

*** will exercise its *** to *** by no later than *** that (i) the *** OpenOffice (version 2 or later) *** does or will *** Office Open XML format (“Open XML”), and (ii) it will make a *** *** If *** does not *** it will *** within the same time frame that *** in the *** on a*** to *** Open XML. *** will provide its *** to*** at least *** in advance of *** The *** will be *** not to be *** will provide *** in the *** will *** of such *** the Term, including through *** in the *** is defined in the Business Collaboration Agreement.

Ummm, OK.

Then the two parties yap about translator projects. Seems to me life would be a lot easier, if everyone could just agree on one document format standard.

Exhibit 10.34--Business collaboration pact:

These documents illustrate just how much Microsoft is paying to support the Novell partnership. To wit:

  • Microsoft is footing the bill for marketing the Novell-Microsoft partnership. It is spending $60 million.
  • Microsoft is allocating $34 million "to fund and maintain a sales force that will dedicate the majority of their time toward the promotion and sale of the Combined Offering and/or the Subscription Certificates. In conjunction with the foregoing, within a commerciallyreasonable period of time following the Effective Date, and thereafter during the Term, Microsoft will assemble and maintain such sales force." Of course, the actual number of sales people is redacted as is the training and channel plans.
  • Microsoft will purchase $240 million in prepaid subscription rights.

Needless to say when you lay out that much dough you have the final call. Novell said:

Novell acknowledges and agrees that Microsoft may exercise its sole discretion in determining how and whether to use and/or distribute the Prepaid Subscription Rights to best implement Microsoft’s internal business strategies for driving incremental revenue growth and otherwise furthering Microsoft’s business interests. Accordingly, Microsoft, in its sole discretion, will establish the price it will charge Shared Customers and other SLES licensees for such Prepaid Subscription Rights. Novell acknowledges that it is not entitled to share in any revenue (if any) generated by Microsoft from the distribution of the Prepaid Subscription Rights.

Exhibit 10.35--Patent Agreement:

What exactly is a clone product? Judging from this document a clone product is anything that resembles Microsoft software. This take may explain where Microsoft gets its "open source infringes on 235 patents" line.

Here's the passage:

“Clone Product” means a product (or major component thereof) of a Party that has the same or substantially the same features and functionality as a then-existing product (or major component thereof) of the other Party (“Prior Product”) and that (a) has the same or substantially the same user interface, or (b) implements all or substantially all of the Application Programming Interfaces of the Prior Product. Those portions of a product that are otherwise licensed to one Party from the other Party, or that are compliant with a specification of a standards organization as to which the other Party has consented to the use of its Patents therefore, shall not be considered in determining whether the product is a Clone Product. (i) The Parties agree that products sold, licensed, supplied, distributed or otherwise made available by a Party for Revenue before the Effective Date (“Existing Products”) will not be deemed Clone Products. For purposes of clarification, the parties acknowledge that any features and functionality of such Existing Products (“Existing Product Functionality”) may be considered in determining whether a new product (or major component thereof) meets the requirements set forth in the first paragraph of this definition, provided that, even if a new product (or major component thereof) meets such requirements, only those Patents covering inventions in new features and functionality in such Clone Product may be asserted against such Clone Product, and only with regard to Clone Product Functionality. For purposes of this subsection (i), “Clone Product Functionality” means features or functionality (other than Existing Product Functionality) that add to meeting the requirements set forth in the first paragraph of this definition. (ii) Notwithstanding subsection (i) above, Wine, OpenXchange, StarOffice and OpenOffice are not subject to such subsection (i), however, the exclusion of such products from such subsection (i) is without implication as to (and shall not affect the determination of) whether such products (or any features or functionality thereof) are Clone Products. Further, the Parties agree that (A) no inference shall be drawn from the reference to the above products in this subsection as to whether such products are Clone Products and (B) this subsection shall not be admitted or referred to in evidence in any dispute regarding an evaluation of whether any of the products referred to in this subsection is a Clone Product.

That's a lot of legalese, but it sounds the market for clone products may be pretty broad. If there are any lawyers in the house feel free to interpret that mess above. Groklaw's comment section has more on the topic.

At the end of the document, Microsoft outlines its patents pledge to hobbyist developers and developers.

The message seems to be: Cut deals with Microsoft on patents and you'll be exonerated.


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