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Novell Opens Curtain on Microsoft Deal

By Sean Michael Kerner (Send Email)
Posted Nov 10, 2006


When news of the Novell Microsoft partnership broke last week, the release was long on rhetoric and short on details, specifically financial details.

It's worth well over a billion dollars, and according to Novell, the deal is not a violation of the GPL.

Now, after a week of relentless criticism in open source circles, Novell is fessing up and opening up on what the deal with Linux nemesis Microsoft adds up to: about $348 million over the next five years.

It breaks down like this, according to its SEC filing. Novell will receive $240 million from Microsoft for SUSE Linux Enterprise Server (SLES) "certificates" that Microsoft may use itself, distribute or resell.

The certificates provide the bearer with a subscription support for Novell's SLES server Linux distribution. During the press conference announcing the deal last week, Microsoft CEO Steve Ballmer noted that Microsoft would be acquiring 70,000 SLES certificates (though Ballmer called them "coupons").

Under the terms of the patent covenant agreement between Novell and Microsoft, Novell will receive a payment from Microsoft of $108 million for use of Novell's patents. In turn, Novell will pay at least $40 million a year for five years for a total of $200 million to Microsoft as part of the patent covenant. The patent covenant stipulates that Microsoft will not assert its patents against Novell's end-user Linux customers.

By some estimates, Novell's payments to Microsoft may average out to more than $40 million a year, as they are set to be pegged as a percentage of Novell's Open Platform Solutions and Open Enterprise Server revenues.

Novell's patent covenant with Microsoft has been the subject of intense debate in open source circles since the news of the deal hit the industry last week. Some groups argue that the deal itself is a violation of the GPL (define), under which many Linux packages (including the Linux kernel itself) are licensed.

"Many people want to know whether this agreement is compatible with Novell's obligations under the GPL, especially section 7," Joseph A. LaSala, Jr., senior vice president and general counsel for Novell, said in a statement. "This was an important consideration for us as well."

He said that, under the patent cooperation agreement, Novell's customers receive directly from Microsoft a covenant not to sue. "Novell does not receive a patent license or covenant not to sue from Microsoft, and we have not agreed with Microsoft to any condition that would contradict the conditions of the GPL."

On the marketing side, Microsoft will be committing $60 million over five years (or about $12 million a year) on joint Linux/Window marketing, specifically in the virtualization space. Additionally, Microsoft is committing $34 million over the length of the five-year agreement for a dedicated sales force to push the joint Linux/Windows offering.

The deal expires on January 1, 2012, though one section of the agreement does expire two years sooner. That part said "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."

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