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Details of the Novell-MS NotaDuck Pact - The SEC filing - Updated
Tuesday, November 07 2006 @ 07:43 PM EST

Here's the SEC filing, Novell's 8K. Note that the humorously titled Patent Cooperation Agreement has exceptions, but they are not listed or explained. Anyone able to make sense of this gobbledygook?
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.

So let me get this straight: Novell promises not to sue Microsoft's customers for using Microsoft software. Microsoft promises not to sue Novell SUSE paid customers for using Novell SUSE. They each pay each other millions. But it's not a patent cross license. No sirree. Why that would violate the GPL, don't you know. In fact, it isn't a license at all, because that would violate the GPL too. And then Novell couldn't distribute all that GPL software it didn't write but wishes to control. It's just a friendly handshake, and what are specifics between friends who wish to step over and past the GPL?

But if there are "certain exceptions", I believe that implies somebody knows some specifics. One way or another, these beans will eventually get spilled.

Here's the Novell FAQ. See if you can match up the FAQ to the SEC filing:

Q1. How is this agreement compatible with Novell's obligations under Section 7 of the GPL?

Our agreement with Microsoft is focused on our customers, and does not include a patent license or covenant not to sue from Microsoft to Novell (or, for that matter, from Novell to Microsoft). Novell's customers receive a covenant not to sue directly from Microsoft. We have not agreed with Microsoft to any condition that would contradict the conditions of the GPL and we are in full compliance.

Novell's end user customers receive a covenant not to sue directly from Microsoft for their use of Novell products and services, but these activities are outside the scope of the GPL.

Get it? Novell doesn't get the promise from Microsoft. Its *end users* do. Ha ha, GPL. Except that the end users are also licensees, according to the GPL license. Licensees who are not allowed to redistribute, Novell and MS told us, without losing the patent promise, speaking of specifics, according to the deal made on their behalf -- without asking them to agree or not -- and on top of the GPL license they already got. Hmm. We'll see.

[ UPDATE: Oct. 8, 8:42 AM - I just realized the full significance. Novell here is stepping outside the line of fire and agreeing with Microsoft that *end users* are the ones that you must go after in any patent infringement dispute. Shades of SCOsource. Thanks for nothing, Novell. More questions: When were Novell SUSE customers asked if they wished Novell to negotiate a agreement with Microsoft on their behalf? When were Novell SUSE customers asked about the terms of said agreement? What consideration does Microsoft get from Novell's customers? Does negotiating this agreement on Novell's customers' behalf indicate that Novell assumed Power of Attorney for their customers in this matter? Did Novell truly represent the best interest of their customers using Power of Attorney? Can Novell legally assume Power of Attorney for their customers without a written grant? Do Novell customers have the ability to "opt-out" of this agreement? Is this agreement binding on customers?

[And deeper, if parties deliberately conspire to meet the letter of a license while violating its clear spirit and intent, will the courts uphold it? Note this interview with Microsoft's Bill Hilf:

Hilf: We started on the general framework for this three years ago. The deal with Novell started about six months ago. There was just a lot of work we needed to do to understand the GPL side of it and not violate the GPL. We don't actually license patents in this agreement. There is no patent cross-licensing. We are saying we are providing coverage for Novell's customers from a Microsoft intellectual property perspective. That allows us to work with the GPL because the GPL is very specific about licensing of patents. That took a while to get to that point from a legal framework....

I read that as saying that there's an intent to have their FOSS cake and eat it too, i.e., they tried to work *around* the GPL rather than just follow it. They know the GPL code can't be encumbered with patents, but they want to do it anyway. I read that as clear intent to sidestep the spirit of the GPL while embracing a perceived loophole in it, to profit from the GPL without adopting it. And by they, I mean Novell too. It agreed to this deal.]

Are they positive Novell's customers wish to enter an anticompetitive, antiLinux deal that benefits someone other than themselves and limits rights that they had before the agreement was entered into? If in fact the promise is worth millions, do the customers get the money? No? All those millions from Microsoft get paid to Novell? I thought this was a straight agreement between Microsoft and SUSE customers. How does Novell pocket the money? $108 million is what Microsoft says it will pay under the patent agreement. To Novell. Well, then, who is the agreement really between? And did you ever hear of "royalty payments" to be paid on a promise? But this is not a license, Your Honor. Nope. Not a bit.

And about those "certain exceptions" -- how will the paying SUSE customers know when they are at the brink of bumping into one of those? Surely if the agreement is directly between them and Microsoft, they have a right to specifics. No? Novell signed the deal for them, and Novell knows? That is enough? They are the proxy standing in for their customers? Then in what way is this a direct arrangement between Microsoft and the Novell customers?

And if it is true, as Novell asserts in the FAQ, that Mono doesn't infringe any patents, and there are no specific patents involved, and no threat of litigation was in the air, and their SUSE doesn't have any patent infringement issues with Microsoft, who needs a Patent Cooperation Agreement about absolutely no patents at all? Well, there aren't any patents except if you are not using SLED; then there are. And then the bogeyman will get you. And he throws chairs. And how come Microsoft has to pay so much more than Novell for the same promise? Riddle me that, Batman. And why did Ballmer offer to enter into the same agreement with Red Hat yesterday, when this agreement with Novell says Microsoft won't do the same deal with anyone else for three years? Deeper, if there is no patent infringement in SUSE to date, then why can't I just use OpenSUSE without fear? Didn't Novell just tell me it's clean as a whistle? And if OpenSUSE is clean, then so is Red Hat. There you go. I'll just use Red Hat without a fear in the world.

If Novell is representing its customers, it has in my view a duty to tell the customers the exact terms of the deal the customers are alleged to be directly entering into with Microsoft, including precisely what patents are covered, and if there aren't any, they should be allowed to say they are not interested in entering a direct agreement with Microsoft. Isn't it businessfolk who keep telling us they need clarity? Well, so do SUSE customers, especially if we're going to be entering into agreements directly with Microsoft.

Of course, it's obvious this is legal sophistry. They are saying to the world, even though it looks like a duck and sounds like a duck and acts like a duck, it's not a duck, because we are calling it NotaDuck and we've taken the long way around, skulking along the unpaved back roads and alleyways instead of taking the straight highway to get to the duck pond. Er. The NotaDuck pond, where notaducks don't swim and that's not quacking you are plainly hearing.

Forsooth, my lord, it smelleth like a duck to me.

Now do you get it, that "Tivoization" is a metaphor for creative ways to make the GPL toothless? It's a trend, not an isolated event. There's money to be made, and the GPL is getting in their corporate way. What they forget is that the code came with a price. The terms of the GPL are that price.

If you look for and maybe find a workaround so you don't have to pay the full price you agreed to, what does one call that? If the price for software you wished to build a business on was money, and you found a loophole way not to pay what you agreed to, would anyone wish to sell you any software from that day on, even if you got away with it?

We'd all know what to think of such conduct. Is it any different if the price of the GPL code is that you can't mix it with proprietary code or attach patents to it or take it closed? And if you find some devilish workaround so you don't actually pay that full price, what are you now? Would it be too strong to call it dishonest? I'll leave it to you to decide for yourselves.


Item 1.01 Entry into a Material Definitive Agreement.

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.


Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Novell, Inc.

Date: November 7, 2006

By /s/ Dana C. Russell
Vice President Finance, Chief Financial Officer

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