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Novell (NASDAQ:NOVL) late Monday issued “an open letter to the community” in response to critics in the open source world who have attacked the company over its recent partnership with Microsoft (NASDAQ:MSFT).

Under the terms of the deal, Microsoft is paying Novell $240 million upfront for SUSE Linux subscriptions, and another $108 million upfront as part of a patent cooperation agreement, plus additional payments later.

With Microsoft CEO Steve Ballmer going around saying that Linux violates Microsoft’s intellectual property, but that users of Novell’s SUSE Linux users would be covered under the agreement between the two companies, the growing belief was that Novell basically sold its soul, furthering the cause - Microsoft’s cause - of slowing adoption of Red Hat (RHAT) Linux. Worse, the agreement has been seen as tacit admission that Linux really does violate Microsoft’s intellectual property.

Novell’s letter today is an attempt to regain Street cred with the open source crowd. Here’s the crux:

Our interest in signing this agreement was to secure interoperability and joint sales agreements, but Microsoft asked that we cooperate on patents as well, and so a patent cooperation agreement was included as a part of the deal. In this agreement, Novell and Microsoft each promise not to sue the other’s customers for patent infringement. The intended effect of this agreement was to give our joint customers peace of mind that they have the full support of the other company for their IT activities. Novell has a significant patent portfolio, and in reflection of this fact, the agreement we signed shows the overwhelming balance of payments being from Microsoft to Novell.

Since our announcement, some parties have spoken about this patent agreement in a damaging way, and with a perspective that we do not share. We strongly challenge those statements here.

We disagree with the recent statements made by Microsoft on the topic of Linux and patents. Importantly, our agreement with Microsoft is in no way an acknowledgment that Linux infringes upon any Microsoft intellectual property. When we entered the patent cooperation agreement with Microsoft, Novell did not agree or admit that Linux or any other Novell offering violates Microsoft patents.

Microsoft has responsed with a statement of its own:

Microsoft and Novell have agreed to disagree on whether certain open source offerings infringe Microsoft patents and whether certain Microsoft offerings infringe Novell patents. The agreement between our two companies puts in place a workable solution for customers for these issues, without requiring an agreement between our two companies on infringement.

Both of our companies are fully committed to moving forward with all of the important work under these agreements. The agreements will advance interoperability between Windows and Linux and put in place a new intellectual property bridge between proprietary and open source software. Customers and participants throughout our industry will clearly benefit from these results.

We at Microsoft respect Novell’s point of view on the patent issue, even while we respectfully take a different view. Novell is absolutely right in stating that it did not admit or acknowledge any patent problems as part of entering into the patent collaboration agreement. At Microsoft we undertook our own analysis of our patent portfolio and concluded that it was necessary and important to create a patent covenant for customers of these products. We are gratified that such a solution is now in place.”

Will this be enough to improve the open source world’s opinion of Novell? I’m skeptical. Over at GrokLaw, the view is that Novell ought to simply drop the patent sharing part of the deal.:

What in the world was this deal about then? It seems at this point that it was Microsoft angling for a FUD opportunity. In any case, the deal is falling apart, I’d say. Microsoft’s statement alleges that they don’t have to agree to go forward. But if the parties themselves don’t know what they agreed to or what the words mean, how valid is the contract?

In a post this morning, I noted that Credit Suisse has reduced its rating on Novell. Wrote Maynard: “Rather than provide a growth engine for the company, we think Novell’s Linux patent deal with Microsoft will hurt the company’s standing in the open source community. We don’t see Microsoft providing a sustainable lift to Novell’s distribution woes.”

I don’t think the letter solved that problem.

Novell shares closed Monday at $6.22, down 8 cents; the stock rebounded 6 cents after hours.

See also: Novell F3Q06 Earnings Call Transcript

Source: Novell: We Didn't Sell Our Soul To Microsoft