Fact and fiction in the Microsoft-SCO relationship

SCO's fight against Linux has conspiracy theorists buzzing over Microsoft's role in the affair. What are the facts?

The SCO Group's legal actions against Linux have shed light on the inner workings of the open-source programming project and on the operations of a company desperate to survive. They've also created a cottage industry for conspiracy theorists over Microsoft's role in the affair.

SCO's attack, based on the company's disputed claim of Unix copyright ownership, and with IBM as the main target, has been bold and expensive. Lindon, Utah-based SCO hired the pricey but high-profile attorney David Boies (of Microsoft antitrust and Napster fame) to launch the attack at a time when product revenue was shrinking and cash was dwindling.

But it was Microsoft that helped ensure that SCO could mount the fight, by providing major financial help at least twice in 2003. (SCO's finances are currently being tallied for the quarter ended Oct. 31, with the results to be reported in late December.) Though it doesn't appear that Microsoft was in the driver's seat when it came to SCO's legal attack on Linux, Microsoft's financial assistance was unusual and crucial.

Naturally, the arrangement has captured the imagination of legions of conspiracy theorists worldwide. And why not? In one corner you've got a tech Goliath that has dominated the PC industry by humbling companies ranging from giant IBM to former Net darling Netscape. In the other corner stands the company's new nemesis, Linux, an underdog operating system that has thousands of devotees preaching its virtues and, more importantly, contributing to its growth.

In an effort to separate fact from fiction, CNET News.com presents the following answers to some of the more common questions swirling around the SCO-Microsoft relationship.

Has Microsoft's money been a significant resource for the financially ailing SCO?
Without a doubt. In early 2003, Microsoft started paying SCO what eventually grew to $16.6 million for a Unix license, according to regulatory filings. Only longtime Unix fan Sun Microsystems previously paid close to that, with a $9.3 million license deal.

Microsoft provided a second, though indirect, boost in August or September of 2003, when it referred SCO to BayStar Capital, a fund that arranged a $50 million investment.

"Microsoft obviously has an interest in this, and their interest is obviously in keeping their operating system on top."
--Larry Goldfarb
managing partner, BayStar
SCO chief Darl McBride has been up front about the importance of Microsoft's funding, direct or otherwise.

"A year ago we had $6 million. Now we have $60 million, with $50 million of that coming in through the investment. We have a war chest to defend our rights, to fight our claims in the courtroom," he said earlier this year, adding that the cash is enough for the long haul. "We think the legal battles we have won't even go through half that amount of cash, even played over a multiple number of years."

Most of that cash is now gone: SCO paid most to its law firms and to retire BayStar's preferred stock.

Paying the license fees could indicate that Microsoft simply believes SCO's Unix ownership claims have merit. But doesn't arranging the BayStar investment reveal Microsoft's ulterior motive? After all, why would you want to help prop up a company that is demanding millions in royalty fees from you?
That may not be far off the mark, according to a key BayStar executive.

"Microsoft obviously has an interest in this, and their interest is obviously in keeping their operating system on top," says Larry Goldfarb, managing partner of BayStar.

Without naming names, Goldfarb explained that BayStar received a call from a "senior" Microsoft employee, but not Chairman Bill Gates or Chief Executive Steve Ballmer. "When they started telling me what it was, I wasn't shocked (that) this was something they'd like to see prevail."

Is the licensing agreement unusual for Microsoft?
Not only was the license fee the largest SCO has yet landed, but Microsoft's willingness to write a check also contrasts with its behavior in the 1990s when SCO's predecessor, the Santa Cruz Operation, tangled with the software behemoth over a 1987 Unix contract. In that case, Microsoft dug in its heels and the dispute was settled only by a European Commission ruling.

Is Microsoft more than a passive participant? Is it driving the decision to take IBM (and Linux) to court and to sow FUD--fear, uncertainty and doubt--among corporate buyers?

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