SCO: Leaked e-mail a 'misunderstanding'

The SCO Group dismissed a leaked memo that connected Microsoft to $86 million in investments in the company, saying the author of the e-mail misunderstood the venture deal.

The SCO Group on Thursday acknowledged the authenticity of an e-mail sent Oct. 12 from Michael Anderer, CEO of Salt Lake City venture firm S2 Partners, to SCO Vice President Chris Sontag and Chief Financial Officer Robert Bench. The memo appears to be a discussion of the compensation that Anderer received for facilitating venture deals on SCO's behalf.

"Microsoft will have brought in $86 million for us including BayStar," stated the e-mail, which was posted by the Open Source Initiative on its Web site.

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Eric Raymond, an open-source software and Linux luminary, added his comments to the memo: "This is the smoking gun. We now know that Microsoft raised at least $86 million for SCO, but according to the SCO conference call (on Wednesday) their cash reserves were $68.5 million. If not for Microsoft, SCO would be at least $15 million in debt today."

SCO acknowledged the memo but dismissed both the author's and Raymond's conclusions. BayStar Capital's $50 million investment in SCO wasn't due to Microsoft's participation, said Blake Stowell, a spokesman for Lindon, Utah-based SCO.

"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, and he was told at the time of his misunderstanding," Stowell said, reading from a statement. "Contrary to the speculation of Eric Raymond, Microsoft did not orchestrate or participate in the BayStar transaction."

Stowell would not comment beyond the statement and refused to furnish a copy of the memo to CNET News.com. Anderer could not be reached for comment.

SCO has gained the ire of the open-source community and many companies that use Linux because of its claims that it retains copyrights on critical pieces of the Linux code base.

This week, SCO ratcheted up its pressure on Linux users by suing AutoZone and DaimlerChrysler, both which use Linux in their businesses. The company had prepared a complaint against Bank of America, but changed the focus of its target on Feb. 18, according to a document seen by CNET News.com.

The Open Source Initiative made the memo part of its collection of so-called Halloween documents, which are leaked memos from or about Microsoft's attempts to fight the open-source software movement. The name stems from the date on which the first memo--a leaked Microsoft paper on the open-source phenomenon published on Oct. 31, 1998--was originally released.

SCO's blanket dismissal of the leaked memo as the mistaken assumptions of an independent contractor doesn't explain several parts of the letter which seem to indicate knowledge of Microsoft's involvement in SCO's investment search, however.

For example, the memo states that Microsoft apparently wanted to use private investments in public companies to help fund SCO.

"Microsoft also indicated there was a lot more money out there, and they would clearly rather use Baystar 'like' entities to help us get significantly more money if we want to grow further or do acquisitions," the leaked memo stated.

SCO also is involved in suits with IBM, Red Hat and Novell regarding Unix and Linux technology. The cost of these suits and the rest of the company's SCOsource effort to derive more money from its intellectual property was $3.4 million for the company's most recent quarter.

Bob Bench, SCO's chief financial officer, said Wednesday that the company expected the legal costs "at similar levels in upcoming quarters" with increasing revenue from its SCOsource effort.

Other parts of the memo seemed to indicate that the company has been searching for patents on Novell technology to give it leverage in its lawsuit against that company.

Novell declined to comment on the memo.

Late Thursday, a Microsoft representative told CNET News.com that the company is not financially involved in the SCO-BayStar deal, saying its only financial relationship is its license of SCO's intellectual property.

"The details of this agreement have been widely reported and this is the only financial relationship Microsoft has with SCO," the representative said in an e-mail interview. Microsoft "has no financial involvement in the SCO and BayStar agreement, and (Microsoft) has no financial relationship with BayStar."

When Microsoft was asked specifically whether it or any of its employees played a role in connecting SCO to BayStar, the company declined to comment.

CNET News.com's Stephen Shankland and Ina Fried contributed to this report.