Is Leaked eMail a SCO-Microsoft Connection?

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UPDATE: After a week of telling the story about its latest Linux lawsuits on its own terms, SCO Group is getting some major pushback from the open source community.

In one development, open source guru Eric Raymond posted a leaked e-mail from an outside SCO Group consultant to a SCO Group vice president. The e-mail, which SCO has confirmed is authentic, allegedly indicates Microsoft’s involvement in providing indirect financial support to SCO’s legal campaign against Linux, according to Raymond’s comments posted between the lines of the e-mail.

The development threw cold water on a week in which SCO had garnered technology press and mainstream news coverage for three staight days. On Monday, SCO issued a statement that it had signed ISP company EV1servers.net as its first publicly announced Linux licensee.

On Tuesday, SCO disclosed that it was about to file lawsuits against two commercial Linux users, but it wouldn’t name the firms.

On Wednesday, SCO identified the companies: Autozone and DaimlerChrysler, sparking another round of news coverage. The news also obscured a same-day earnings announcement in which SCO reported a net loss of $1.5 million for its first fiscal quarter–about double the loss from the same, year-earlier period.

Separately, Computer Associates is denying reports circulating on
the Web that it specifically licensed Linux license from SCO. Rather, CA
said its license was an outgrowth of a legal agreement.

In a statement released by CA, Sam Greenblatt, senior vice president and chief architect of the company’s Linux technology group, said: “CA disagrees with SCO’s
tactics, which are intended to intimidate and threaten customers. CA’s
license for Linux technology is part of a larger settlement with the Canopy
Group. It has nothing to do with SCO’s strategy of intimidation.”

The reports that CA had taken a license surfaced in a copy of a Feb. 4
letter from SCO attorney Mark Heise to IBM that was posted on the legal site Groklaw. In the letter Heise identifies CA, Questar, and Leggett & Platt as SCO Linux licenses.

Reached at SCO, spokesman Marc Modersitzki told internetnews.com:
“Our official position is that we don’t discuss our licenses.” He
specificially declined to comment on the authenticity of the Groklaw
posting. However, he said, “we can confirm that Mark Heise sent a letter to IBM which had information about our Unix licenses.”

The developments also came after a federal judge ruled that SCO Group has to show detailed code in order to back up its lawsuit against IBM involving copyright infringement and breach of contract over Linux.

Now, the e-mail made public by Raymond may earn SCO some less welcome attention.

The message was sent by outside financial consultant Mike Anderer to Chris Sontag, vice president and general manager of SCOsource, the division responsible for the company’s intellectual property licensing.

The e-mail, dated Oct. 12, 2003, talks about Microsoft funneling money to SCO via a venture capital firm called Baystar.

In a passage cited by Raymond’s Web site as a “smoking gun,” Anderer writes:

“Microsoft will have brough [sic] in $86 million for us including Baystar. The next deal we should be able to get from $16-20 but it will be brutial [sic] as it is for go to makerket [sic] work and some licences. I know we can do this, if everyone stays on board and still wants to do a deal.”

According to Raymond, “This is the smoking gun. We now know that Microsoft raised $86 million for SCO, but according to the SCO conference call this morning [SCO’s March 3 earnings report] their cash reserves were $68.5 million. If not for Microsoft, SCO would be at least $15 million in debt today.”

Raymond’s posting continued: “The ‘$16 to $20’ is probably $16 to $20 million in cash, and since this memo is five months old that deal is almost certainly completed by now. This means it’s possible SCO has burned through as much as $30 million in just a year.”

Another passage from Anderer’s email to SCO’s Sontag that’s been singled out by Raymond said: “We should line up some small acquisitions here to jump start this if we do it. We should also do this ASAP. Microsoft also indicated there was a lot more money out there and they would clearly rather use Baystar “like” entities to help us get signifigantly [sic] more money if
we want to grow further or do acquisitions.”

Raymond characterized that passage by asking: “In other words, Microsoft wanted to funnel its anti-Linux payoff through third parties. Maybe in case the antitrust guys at the Department of Justice happen not to be asleep at the switch?”

Reached at SCO, company spokesman Blake Stowell confirmed that the e-mail is genuine. However, he released a statement which noted: “We believe the e-mail was simply a misunderstanding of the facts by an outside consultant who was working on a specific unrelated project to the Baystar transaction. He was told at the time of his misunderstanding. Contrary to the speculations of
Eric Raymond, Microsoft did not orchestrate or participate in the Baystar transaction.”

Separately, SCO remains enmeshed in a suit against Novell.

Most recently in that case, SCO has been given until the end of this
week to respond to a motion by Novell to dismiss the case.

In another action, Red Hat has sued SCO to stop the latter from making what it called “untrue” claims about its
business.

Susan Kuchinskas contributed to this report.