Microsoft to Pay Novell $348 Million

As part of a blockbuster agreement announced last week in which longtime rivals Microsoft and Novell shook hands over Linux, Microsoft will pay Novell $348 million up front, but Novell will return $200 million of that amount over five years.

The specific numbers came in an a filing to the U.S. Securities and Exchange Commission made by Novell late Tuesday. "The financial commitments Microsoft is making as part of this agreement are significant," company CEO Ron Hovsepian said in a statement.

As previously reported, the agreement -- which endures until 2012 -- includes joint development, marketing and support of solutions to make Windows and Linux work better together. Novell's SUSE Linux will become the Linux distribution recommended by Microsoft to seamlessly work with Windows and not be subject to any patent claims from the Redmond company.

Microsoft will pay Novell $240 million up front for 70,000 "coupons" from Novell that offer a one-year subscription for maintenance and updates to SUSE Linux Enterprise Server. Microsoft will distribute these coupons to its corporate customers as a way to promote Novell's Linux over rivals such as Red Hat.

In addition, Microsoft is providing a covenant not to assert its patent rights against customers of SUSE Linux, and Novell will do the same for customers of Windows. Microsoft will pay Novell $108 million immediately to cover this part of the agreement, while Novell pays Microsoft at least $40 million per year over five years (the specific amount will be determined by the Linux vendor's revenues).

Microsoft will also pay $60 million total over five years marketing SUSE Linux and Windows as compatible solutions. Another $34 million will be spent by Microsoft on a dedicated sales force to sell the offering.

Novell in its filing attempted to alleviate concerns that the wide-ranging agreement would violate the license terms associated with Linux, which fall under the GPL. Some open source advocates have accused Novell of turning its back on the community and making a pact with the devil.

"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," said Novell general counsel Joseph A. LaSala, Jr.

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