Is the Microsoft-Novell Deal Doomed?

It was one more Microsoft executive's comment before a small gathering that took a few days to germinate, and then to erupt: According to transcripts, Microsoft CEO Steve Ballmer, referring to his company's recent agreement with Novell, told a SQL Server conference last Thursday that Novell has "appropriately compensated Microsoft for our intellectual property, which is important to us...[because] in a sense, you could say that anybody who has got Linux in their data center today sort of has an undisclosed balance sheet liability, because it's not just Microsoft patents."

Although the details of the Novell/Microsoft agreement have never been released by either party, it was generally understood that both companies would be compensating one another, at the very least, to squelch each party's ongoing complaints about the other's alleged intellectual property infringements. In short, IP was the topic, so that shouldn't surprise anyone - what hasn't been generally known is what each party believes it's getting compensated for.

Last week's comments from Ballmer made Microsoft's stand on the matter pretty clear: In lieu of any "proxies" willing to represent the Linux user, the way Novell was willing to represent its SUSE Linux customers, Microsoft sees individual Linux users as potentially liable for IP infringement, to Microsoft and other companies.

The uproar over the weekend forced Novell yesterday to release a statement distancing itself from Ballmer and Microsoft.

"We disagree with the recent statements made by Microsoft on the topic of Linux and patents," writes Novell CEO Ron Hovsepian, in an "Open Letter to the Community." "Importantly, our agreement with Microsoft is in no way an acknowledgment that Linux infringes upon any Microsoft intellectual property. When we entered the patent cooperation agreement with Microsoft, Novell did not agree or admit that Linux or any other Novell offering violates Microsoft patents."

Indeed, both parties to the agreement were equally careful last November 2 to refrain from characterizing it as compensation for infringement, instead borrowing a metaphor from Bill Clinton's final presidential campaign: They were building a bridge together toward the future.

As Ballmer described the agreement during his joint statement with Novell's Hovsepian two weeks ago, "This new collaboration relationship was really only possible through some breakthrough work that creates an intellectual property bridge between the open-source and proprietary-source business models. Obviously, the open-source model and the proprietary-source, if you will, patent and IP model are very different, and people have struggled for a number of years to find a way to kind of bridge those differences. A number of people said it couldn't be done, but we think we found a solution that respects both business models, but still allows for a workable IP approach going forward."

Microsoft general counsel Brad Smith added the following on November 2, "The first [priority] was to address all of the issues relating to proprietary software, source code, and the second was to figure out how to build a bridge between the open source and proprietary source sides of our industry. All of this, of course, took place against the backdrop of two companies that each have some important patent portfolios...So we had to take account of all of these rights that we each had created over the years...first on the proprietary side, work out all of the arrangements, that are always challenging when you get teams of patent lawyers together. And we were able to do that. And then we really had to think hard and work hard and be as creative as we could to figure out how we could build a bridge in intellectual property - a patent bridge - between open source and proprietary source software."

If the two companies indeed built a bridge, then Steve Ballmer's plan of action last week could be likened to Sir Alec Guinness' coup de grace with regard to the "Bridge Over the River Kwai." Based on yesterday's comments from Hovsepian, Novell may be returning to its pre-agreement stance on software patents, which the company is characterizing as never having changed.

"Our stance on software patents is unchanged by the agreement with Microsoft," writes Hovsepian. "We want to remind the community of Novell's commitment to, and prior actions in support of, furthering the interests of Linux and open source, and creating an environment of free and open innovation. We have a strong patent portfolio and we have leveraged that portfolio for the benefit of the open source community."

If Novell goes its own way, the legally-minded segment of the Linux community is wondering today whether an agreement actually exists any more.

"The problem is," Groklaw editor Pamela Jones told BetaNews this afternoon, "no one will tell us what the contract really says. Until they do, we are all guessing, and that is compounded by the fact that the parties themselves don't agree on what it says and what it means."

"To me, that means there is no contract, no meeting of the minds," Jones continued, "which is an essential element of any contract."

Next: So What's Left?