Microsoft Said to Encourage Big Investment in SCO Group

[Dave Farber <dave () farber net>]

Microsoft Said to Encourage Big Investment in SCO Group

March 12, 2004
 By STEVE LOHR





More evidence emerged yesterday about Microsoft's role in
encouraging the anti-Linux campaign being waged by the SCO
Group, a small Utah company.

BayStar Capital, a private investment firm, said Microsoft
suggested that it invest in SCO, which is engaged in a
legal campaign against Linux, a rival to Microsoft's
Windows.

BayStar took Microsoft's suggestion to heart and invested
$50 million in SCO last October. But a spokesman for
BayStar, Robert McGrath, said, "Microsoft didn't put money
in the transaction and Microsoft is not an investor in
BayStar." He added that Microsoft executives were not
investors as individuals in the investment firm, which is
based in San Francisco.

Mr. McGrath said the suggestion came from unidentified
"senior Microsoft executives" but not Bill Gates, the
Microsoft chairman, or Steven A. Ballmer, the chief
executive.

Microsoft, Mr. McGrath said, is not indemnifying the
investment firm against risk or otherwise indirectly
supporting BayStar's move. "The issue for BayStar," he
said, "is whether there is a good return on its investment
in SCO."

Microsoft, Sun Microsystems and a few other companies have
struck deals with SCO to license its technology. SCO owns
the rights to Unix, an operating system initially developed
at Bell Labs. SCO contends that Linux, a variant of Unix,
violates its contract rights.

SCO's legal campaign began last year when it sued I.B.M., a
leading corporate supporter of Linux, and recently stepped
up its legal attack by filing suit against two companies
that use Linux, DaimlerChrysler and AutoZone.

The defendants are fighting the lawsuits, saying they have
done nothing wrong and challenging SCO's claim that its
rights are as broad as the company contends.

Microsoft stands to gain most from any slowing of the
advance of Linux, which is maintained and debugged by a
network of programmers who share code freely. That model of
building software is called open source development.

It is not particularly surprising that Microsoft, given its
interests, played the go-between for an investment in SCO.
"But this shows is that there is a lot more than meets the
eye in SCO's litigation strategy," said Jeffrey D.
Neuburger, a technology and intellectual property expert at
the law firm of Brown Raysman Millstein Felder & Steiner.
"SCO has an agenda, and Microsoft clearly has an agenda,
and it's doing whatever it can to further its cause."

The extent of Microsoft's behind-the-scenes role in SCO's
legal effort has prompted questions and speculation for
months. Last week, a leaked e-mail message from an adviser
to SCO to the company added to the controversy in the
industry. In the memorandum, sent to two SCO executives,
Mike Anderer of S2 Strategic Consulting discussed a role in
financing SCO, writing that "Microsoft will have brought in
$86 million for us including BayStar."

SCO acknowledged that the e-mail message, obtained by the
Open Source Initiative and posted on the open-source
advocacy group's Web site, was authentic.

But SCO added that it was a "misunderstanding of the facts
by an outside consultant" who was not working on the
BayStar financing. SCO added that Microsoft did "not
orchestrate or participate in the BayStar transaction."

A SCO spokesman, Blake Stowell, said yesterday, "We stand
by that."

http://www.nytimes.com/2004/03/12/technology/12soft.html?ex=1080094519&ei=1&en=5d1bba4be75a3703

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