Novell Outlines Details of Agreement with Microsoft

Novell today published additional details on the agreements announced with Microsoft on Nov. 2, outlining the substantial commitment made by both companies to address customers' growing requirement for Windows and Linux interoperability. The details were made available by Novell in a filing with the SEC. The financial terms of the agreements include payments for pre-paid SUSE Linux Enterprise subscriptions, sales, marketing and development commitments, and payments under the patent cooperation agreement. The company also provided answers to a series of questions raised by the open source community in an FAQ posted on its website. Novell reinforced its commitment to working with the open source community and to fully meet the requirements of the GNU General Public License ("GPL") which governs the distribution of Linux and other free software.

"The financial commitments Microsoft is making as part of this agreement are significant," said Ron Hovsepian, president and CEO of Novell. "This will help drive Linux more rapidly into the enterprise and government arenas, broadly expanding opportunities for Linux and open source. This is good for Novell, but it's also good for the community because it will make Linux and open source much more prevalent and drive demand for Linux-based solutions."

As part of the business cooperation agreement, Microsoft will make an upfront payment to Novell of $240 million for SUSE Linux Enterprise Server subscription certificates. Microsoft may use, resell or distribute them over the term of the agreement, allowing customers to redeem a single or multi-year subscription for upgrades, updates and technical support from Novell. Microsoft will dedicate $60 million total over the five year period for marketing Linux and Windows virtualized scenarios and will also spend $34 million over the five year term of the agreement for a Microsoft sales force devoted primarily to marketing the combined offering.

Additionally, under the business collaboration agreement, Microsoft agreed that for three years, it will not enter into an agreement with another Linux distributor to encourage adoption of Linux/Windows virtualization solutions through a Linux subscription certificate program. IDC projects the market for virtual machine software to be $1.8 billion by 2009.

Under the patent cooperation agreement, Microsoft will make an up-front net payment to Novell of $108 million, and Novell will make ongoing payments of at least $40 million over five years to Microsoft, based on percentages of Novell's Open Platform Solutions and Open Enterprise Server revenues.

Novell also published answers to a series of questions raised by the open source community regarding the agreements. A primary question pertains to Novell's compliance with the terms of the GPL. As explained in the FAQ and below, the patent agreement complies with the GPL.

"Novell entered this broad set of agreements with Microsoft to further promote the adoption of Linux," said Joseph A. LaSala, Jr., senior vice president and general counsel for Novell. "Many people want to know whether this agreement is compatible with Novell's obligations under the GPL, especially section 7. This was an important consideration for us as well. Under the patent cooperation agreement, Novell's customers receive directly from Microsoft a covenant not to sue. Novell does not receive a patent license or covenant not to sue from Microsoft, and we have not agreed with Microsoft to any condition that would contradict the conditions of the GPL. Our agreement does not affect the freedom that Novell or anyone else in the open source community, including developers, has under the GPL and does not impose any condition that would contradict the conditions of the GPL. Therefore, the agreement is fully compliant with the GPL."

For years, Novell has been a leader in defending the open source community from attacks by those who would harm Linux. Novell's strong challenge to SCO, which began in 2003 and is ongoing, our debut of indemnification of customers for possible copyright infringement claims in early 2004, our patent policy adopted in 2004, and our co-founding of Open Invention Network in 2005 all speak to our strong commitment to the community. This latest business transaction, which promotes interoperability between proprietary and open source solutions, takes that commitment to another level, this time by focusing on the IT needs of our customers.