October 9, 2006 4:41 PM PDT

Investor outlines SCO-Microsoft link

A former investor in the SCO Group has identified a Microsoft executive who, he said, worked to "backstop" a funding deal that ultimately helped SCO pursue its legal case against the Linux operating system.

The investor, BayStar Capital managing partner Lawrence Goldfarb, first called attention to Microsoft's involvement in BayStar's $50 million investment in the SCO Group more than two years ago.

The BayStar-arranged funding, which included $20 million from the venture fund and $30 million from the Royal Bank of Canada, was instrumental in SCO's expensive lawsuit against IBM, in which it alleges Big Blue moved proprietary Unix technology into open-source Linux against the terms of its Unix contract with SCO.

Now, in a sworn declaration described in an IBM court filing, Goldfarb said he discussed SCO funding arrangements with Richard Emerson, a Microsoft senior vice president. In 2000, Microsoft CEO Steve Ballmer named Emerson to lead the software giant's corporate development and strategy, putting him in charge of its mergers, acquisitions and partnerships.

"Mr. Emerson and I discussed a variety of investment structures wherein Microsoft would 'backstop', or guarantee in some way, BayStar's investment...Microsoft assured me that it would in some way guarantee BayStar's investment in SCO," Goldfarb said in the declaration.

The assertion indicates that at least one person at Microsoft apparently was working, at least indirectly, to support SCO's case against a mutual rival, the Linux operating system. SCO Chief Executive Darl McBride said the $50 million investment arranged by BayStar brought the company's legal "war chest" to $60 million.

A Microsoft representative didn't specifically deny the BayStar-Microsoft talks. However, the company said in a statement, "Microsoft has no financial relationship with BayStar and never agreed to guarantee any of BayStar's $50 million investment in SCO. The BayStar declaration confirms that no guarantee was ever provided."

Goldfarb's comments were disclosed over the weekend at the SCO-watcher legal Web site Groklaw.

Goldfarb's declaration indicates Microsoft was indeed willing to help SCO attack Linux, said Allonn Levy, litigation attorney with Hopkins & Carley, a San Jose, Calif.-based law firm.

"Although the declaration does not indicate any actual money was paid by Microsoft, it does suggest that the software behemoth was operating behind the scenes, employing its extensive industry contacts in an apparent effort to help SCO finance its lawsuits," Levy said. "Certainly, Microsoft has an obvious interest in promoting the lawsuits, since the lawsuits are seen as an effort to undermine the legitimacy of the Linux operating system."

After BayStar made the investment, Goldfarb said, "Microsoft stopped returning my phone calls and e-mails, and to the best of my knowledge, Mr. Emerson was fired from Microsoft."

Emerson couldn't immediately be located for comment. Microsoft confirmed he no longer works for the company but wouldn't give details of the circumstances of his departure.

BayStar's relationship with SCO has floundered. The investor wanted SCO to focus totally on litigation, while SCO insisted on continuing its Unix business. By mid-2004, the two companies had parted ways.

In his declaration, Goldfarb said that BayStar had sold its stake back to SCO because SCO's stock price was falling and because the company was rapidly spending its cash pile. He also indicated that Microsoft had cooled on its earlier offer of support.

SCO's case hasn't just hit IBM. The Lindon, Utah-based company also sued Linux user AutoZone, Unix licensee DaimlerChrysler, and is tangling with Novell, which claims that it never sold its Unix copyrights to SCO.

Graeme Wearden of ZDNet UK contributed to this report from London.

See more CNET content tagged:
BayStar Capital, SCO Group Inc., declaration, investment, investor


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Convicted monopolist, behaving badly
If this report is correct, we have a convicted monopolist, Microsoft, working a covert deal to squash the competition. Again.

There was a time when the DOJ had the will and the skill to deal a death blow to such a company. Just ask the Rockefellers, IBM and AT&T.

Our current DOJ seems incapable of responding to those that **** on their consent decrees. Microsoft will probably receive a sternly worded letter as a result.
Posted by macemoneta (18 comments )
Reply Link Flag
This kind of behavior is why I will avoid Microsoft products if at all
possible. It is one thing to compete in the marketplace. It is quite
another to use underhanded tactics to prevent rivals from
Posted by Thrudheim (306 comments )
Link Flag
Re: Convicted monopolist, behaving badly
They won't even get a "sternly worded letter". Not from this DOJ.

Charles R. Whealton
Charles Whealton @ pleasedontspam.com
Posted by chuck_whealton (521 comments )
Link Flag
I thinkStephen Shankland and Martin LaMonica meant "Foundered"
Flounder is a fish.

I think the word they were looking for was Founder (to sink), rather than refering to a fish (flounder).
Posted by ehfla (96 comments )
Reply Link Flag
Great Hit Strategy by M$
It would appear to me Microsoft used Emerson as a triggerman to entice BayStar. Of course Microsoft could not afford to leave a trail of tangible evidence, or afford to have Emerson hanging around for long to raise questions. Give MS a brownie point for such a inventive drive-by shot at Linux.
Posted by Dr. StrangeOne (27 comments )
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In America, Money over-rides justice
I thought that in America, the court will decide whether SCO has a valid case. But according to the author of this article, that fact that SCO have $50 million have a actual impact on the outcome of this court case. In America, money wins! It is not so much about justice, but more about money.

Even in the DOJ and EU cases against microsoft, we see the money of both sides playing a big role. It turned out that the money of Microsoft was not more than it compititors (IBM, SONY, Nokia, SUN, Apple, Oracle, to name a few) combined, so Microsoft loses this case and was declaired as a monoply that hurted these many companies. But did not anyone challenged the profit of big Oil when oil prices are so high? No. Because few big coorperations have a real interest in bringing the oil price down. (auto makers and airlines have very little market cap, so their money is much less than the money of big oil)
Posted by fc11 (48 comments )
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IBM has deeper pockets
SCO is one court ruling away from complete and utter devastation. Their legal bills in this farce exceed their meager revenue. Despite boasts of millions of lines of infringing code, they have shown exactly 0. They have also had a huge chunk of the casea dismissed.

That MS would push SCO is no surprise, after all they have the most to lose.

The ironic thing is, since this lawsuit IBM has helped propel OSS to higher and higher levels. All SCO did was make OSS stronger.
Posted by qwerty75 (1164 comments )
Link Flag
Is anyone surprised?
That MS, like any company, would try to protect their revenue stream? They funded a lawsuit to kill a competitor. Big deal.
Posted by J. Blow (193 comments )
Reply Link Flag
Well, they tried to kill Linux - seems they've failed. Utterly.

Once SCO gets the comeuppance they deserve, MSFT will be faced with a market they could've profited from, but instead will eventually be squashed by it.

Ah well... watching MSFT die a slow death as they continue to lose market share over time will be vindication enough :)

Posted by Penguinisto (5042 comments )
Link Flag
It a big deal to people because it is anticompetitive and unfair. Maybe what Microsoft does is legal but that doesn't make it moral or the right thing to do.

I would love to see Linux take the place of Microsoft's falling market share. Thats revenge enough.
Posted by j814wong (18 comments )
Link Flag
SCO is 1 big memory leak
SCO is nothing but a huge memory leak, unstable at best and crap by all accounts.

You know it's bad when you have to reboot the server every couple of days because of memory leaks and instability caused by those leaks.

Pretty common practice was a cron script that would reboot the box every 48 hours or so.
nixware is dead, and good riddance.
Posted by ThePenguin (30 comments )
Reply Link Flag
Were are all the Windows fans who treated Linux Users like nuts for saying
this same thing at the time.

Also common for Microsoft advocates to deny that Microsoft does illegal or imoral things like this.

All I can say is Microsoft executives must be shacking in thier boots to feel they needed to do this to the Linux communitee.

And the Windows user say it's all about market share.

Ya right.
Posted by slim-1 (229 comments )
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Their Master's Voice!
Looks as though M$ has not paid any of their PR Shills to come out from under their respective rocks as yet. Probably not enough public bang on this issue to justify the cost. But then maybe 1 or 2 may pop up with some absurd story about poor M$ is the victim. :)
Posted by Mister C (423 comments )
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Shacking in their boots
No, I don't think any Microsofties ended up living in their shoes. Honest. ;-)

(posted from a Slackware system)
Posted by Trane Francks (936 comments )
Link Flag

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