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March 5th, 2004

Is Microsoft Money Behind the SCO Lawsuits?

Last week a leaked memo from a consultant working with the SCO Group and posted on the Open Source Initiative site, gave many Linux conspiracy theorists ammunition for a long held belief that Microsoft was underwriting SCO's legal battles involving UNIX and Linux.

The leaked memo is from Michael Anderer, CEO of venture firm S2 Partners, to Chris Sontag, SCO's vice president and is dated October 12, 2003. Open Source Initiative claims the memo was leaked by a whistle-blowing employee within SCO.

Anderer says in the memo, "I realize the last negotiations are not as much fun,but Microsoft will have brought in (US)$86 million for us, including BayStar. The next deal we should be able to get from $16-20 ..."

Many have suspected that Microsoft has been the force behind SCO's UNIX / Linux-related legal actions, because Microsoft sees Linux as a competitive threat.

Both SCO and Microsoft deny working together against Linux. SCO maintains that its lawsuit against IBM -- and now Linux users AutoZone and DaimlerChrysler -- is necessary to protect its intellectual property.




Microsoft has publicly acknowledged that it has licensed SCO's intellectual property, but says it has not otherwise invested in SCO. No denials of the legal funding or the leaked memo as yet have been made by Microsoft.

The leaked memo suggests otherwise. BayStar Capital, referred to in the memo as a conduit for SCO funding, is a venture capitol firm. BayStar has invested $50 million in SCO. And Vulcan Capital, the investment firm founded by Microsoft co-founder Paul Allen, has invested heavily in BayStar. Allen continues to be the second-largest Microsoft share owner, after Bill Gates

"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," Anderer states in the memo. Anderer, head of venture firm S2 Partners, facilitates outside investment in 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," SCO spokesperson Blake
Stowell told NewsFactor. Furthermore, Microsoft did not participate in or orchestrate the BayStar investment, he said.

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