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Microsoft: Novell deal a milestone despite squabbles

Landmark deal could still bring together open-source and commercial software business models, Microsoft lawyer Brad Smith says.

SAN FRANCISCO--Microsoft's deal late last year with Novell may have set a record for shortest honeymoon, with the two companies publicly bickering within days.

Nonetheless, Microsoft top lawyer Brad Smith hails the deal as a landmark that still holds the potential of bringing together the open-source and commercial software business models.

"I actually think that when the decade is through, we'll look back, and we'll say the agreement between Microsoft and Novell was one of the most important milestones in the decade from an (intellectual property) perspective," Smith said Thursday at a dinner with a handful of journalists.

Brad Smith Brad Smith

That may be, but the two principals in the deal have hardly been sending love letters to one another. Microsoft and Novell on November 2 announced the pact, under which Microsoft agreed not to sue Novell Linux customers for patent infringement, while Novell agreed to pay Microsoft royalties, among other provisions.

That same month, Microsoft CEO Steve Ballmer claimed that the deal amounted to an admission that Linux infringes on Microsoft patents. Novell CEO Ron Hovsepian took issue with that in an open letter.

"Our agreement with Microsoft is in no way an acknowledgment that Linux infringes upon any Microsoft intellectual property," Hovsepian said in the letter.

Public agreement isn't necessary, so long as the deal is in place, Smith said.

"People can debate how much (the patent protection) is needed, but the reality is it's provided," Smith said.

And while Microsoft and Novell exchanged verbal jabs, customers have really taken to the notion, Smith said. Under the deal, Microsoft resells certificates for Novell Linux software and support. In the three months since the deal was inked, Smith said, Microsoft has seen far more sales of the certificates than it had anticipated. The company initially laid plans for up to 70,000 certificates to be sold in the first year. In the first three months, it has already sold more than 35,000, according to a company representative.

Smith is also looking for pacts with other companies that distribute Linux or use it in their products.

"We are having discussions with other companies that I think share an interest in exploring this kind of model," Smith said. "That includes companies that distribute open-source software, and it includes companies in the embedded space."

He declined to offer any specific names, however.

Microsoft is due to have its first-ever appearance before the U.S. Supreme Court on February 21, when the justices hear an appeal in a patent dispute between the software giant and AT&T. Smith said he is looking forward to the event, though he won't be the one actually making oral arguments. For that task, Microsoft has brought in former Solicitor General Ted Olson.

The case centers on a speech technology patent held by AT&T. The two companies settled much of their dispute, but they disagreed over whether royalties were owed for products sold outside the U.S. and agreed to let the courts settle the matter. A federal appeals court sided with AT&T, and Microsoft appealed to the high court.

U.S. law requires companies to pay royalties on patents for products not only assembled in the country, but also for those whose components are created domestically with final assembly done elsewhere. Among the questions is whether software is made in the United States if the code is created domestically but sent overseas for replication onto discs.

"It is a classic example of a case that is both important and less than easy to explain," Smith said.

He said the case raises issues larger than just whether Microsoft needs to pay a few more dollars in royalties. If software makers that develop their products in the U.S. are required to pay patent royalties globally, they could be at a disadvantage and potentially have incentive to move some development work overseas.

Chief Justice Roberts has recused himself over stock ownership, which means that only eight of the court's nine justices will hear the case. Because it lost at the trial court, Microsoft will need to sway five justices to prevail.

Redmond, privacy groups become allies
In an unlikely pairing, Microsoft and other technology companies are joining consumer and privacy groups in calling for federal privacy laws. Although some privacy groups want laws that go further than the tech companies are seeking, Smith said that in many cases, industry representatives and consumer groups are on the same page.

Right now, there are various state laws but no national standard when it comes to the means for collecting data on the Internet. Smith likened it to food labels in the 1970s, when one type of food had one label, and another had different nutritional information.

Smith said there is not a privacy crisis at the moment, which makes it the right time to talk through the complexities.

"If there is a problem that emerges, there will be pressure to act quickly," he said.

Smith said he has been encouraged by progress over the last 18 months, but he said he is not predicting that a law will make it through Congress this year.