If anyone still believed that Novell would be compelled by law to reveal the shape, size, and caliber of the gun held to its head when it made its still-controversial patent covenant agreement with Microsoft, he was disappointed by the details in Novell's annual 10-K filing with the US Securities and Exchange Commission last Friday. Novell's description of the deal matches almost verbatim a similar description from its last 10-Q filing in February.

In other words, there was no "Ah-ha!" moment, so reporters scavenged the filing to locate a juicy tidbit.

This morning, Linux Watch veteran correspondent Steven J. Vaughan-Nichols may have found it: In a section where Novell details all the possible risks that investors may face when making the decision to buy stock in the company, the company admits its concern that the General Public License under which Linux is distributed may be changed in such a way that would prohibit Microsoft from doing business with it, under the terms the companies have already set forth.

"On March 28, 2007, the FSF released a new draft of GPLv3, known as 'Discussion Draft 3,"' the filing reads, "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."

The terms to which Novell refers are the same terms BetaNews discovered last March.

On its face, the currently discussed draft of GPL version 3 would prohibit licensees from entering into similar patent covenants, on the grounds that licensees are not authorized to excuse IP covered by the GPL from infringement upon anyone else's patent portfolio.

Clauses under consideration would go so far as to prohibit anyone who has entered into a patent covenant - and that would include Novell - from being able to redistribute code covered by GPLv3.

But the debate now centers on whether such a practice constitutes "grandfathering" - a way of creating a condition that can be applied retroactively. Novell's 10-K conveys its understanding that the Free Software Foundation may cease any efforts to grandfather in any kind of covenant ban. Yet even if it does so, Novell's problem becomes whether the terms of GPLv3 affect Microsoft, making it a distributor of free software (on account of those Suse Enterprise Linux licenses it purchased from Novell) and thus bound by its terms. If Microsoft faces such a situation, it could back away from its existing deal.

"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," Novell's 10-K reads, "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."

Here, Novell is admitting it's hurting as a presence in the software market. It continues to face a threat from free and cheap software, and its deal with Microsoft was one way to address that problem. In the absence of that deal, Novell's ability to continue to distribute Linux - and thus help the cause of free software - could be impaired.