Halloween X: Follow The Money

http://www.opensource.org/ ^ | 3 Mar 2004 | www.opensource.org

[amigatec]

Halloween X: Follow The Money 3 Mar 2004

Excuse me, did we say in Halloween IX that Microsoft's under-the-table payoff to SCO for attacking Linux was just eleven million dollars? Turns out we were off by an order of magnitude ? it was much, much more than that.

The document below was emailed to me by an anonymous whistleblower inside SCO. He tells me the typos and syntax bobbles were in the original. I cannot certify its authenticity, but I presume that IBM's, Red Hat's, Novell's, AutoZone's, and Daimler-Chryler's lawyers can subpoena the original.

Explanatory comments are interspersed in [...].. Particularly noteworthy bits of the original are in red.

--- From the mailbox of chris sontag

From: Mike Anderer Sent: Sunday, October 12, 2003 To: csontag@sco.com CC: Bob Bench Subject: Conversation Friday

Chris Sontag, the recipient of this mail, is Vice-President and general manager of the SCOsource, responsible for (as his company page puts it) "overseeing the development and licensing of SCO's immense intellectual property holdings.".

Chris:

I know you were going totalk to Bob later Friday, but I figured I would outline the issues.

[Bob Bench is is the Chief Financial Officer of the SCO group. He is in the Cc line.]

[Mike Anderer is a consultant with an outfit called S2 that bills itself as a "Strategic Consulting" firm, in their M&A group. His name is in SCO's SEC filings. ]

1) Baystar is easy as they were just a Microsoft referral and would be 2%

[Baystar Capital is a venture-capital firm. In 2003 SCO got about fifty million dollars from them in a deal that was rumored to have Microsoft's hand behind it. This confirms the rumor.]

2) Any licensing deal would be at 5%

3) Much of the other work would go from 2% to 3% as I have engaged in direct, but this would require according to Bob either Darl or you signing off on the fact that this ane was not a referral.

4) On the patent side for IPX, where foes that fit it. I am working with the lawyers to get these moved from provisional to more complete in the next week. I think it will spawn at least 3 patents. Ed and I are the inventors on these. What do we fo here

[This is mysterious. IPX is a network stack developed by Novell. The implication is that Mike Anderer thinks SCO might be able to get a patent lock on it, so they were looking for IP leverage against Novell.]

5) The RedHat, Acrylis examiniation, there is no upside here is this billable seperatly. I bought a PC and loaded up RedHat and will take that over and work through it with the Lawfirm. What do we do here?

[Acrylis is a company that Caldera (which became SCO) partnered with in 2001. The ongoing lawsuit between Red Hat and SCO is documented here.]

I realize the last negotiations are not as much fun, but Microsoft will have brough in $86 million for us including Baystar. The next deal we should be able to get from $16-20, but it will be brutial as it is for go to makerket work and some licences. I know we can do this , if everyone stays on board and still wants to do a deal. I just want to get this deal and move away from corp dev and out into the marketing andfield dollars....In this market we can get $3-5 million in incremental deals and not have to go through the gauntlet which will get tougher next week with the SR VP's.

[This is the smoking gun. We now know that Microsoft raised at least $86 million for SCO, but according to the SCO conference call this morning (03 Mar 2004) their cash reserves were $68.5 million. If not for Microsoft, SCO would be at least $15 million in debt today.]

[The "$16 to $20" is almost certainly $16 to $20 million, and since this memo is five months old that deal is almost certainly completed by now. This means it's possible SCO has burned through as much as $30 million in just a year of barratry.]

[The part that starts "I just want" is interesting, too. It looks as though Anderer is talking about shopping for a wealthier patron group within Microsoft's corporate hierarchy; SCO has been taking money from Microsoft "corp dev" (probably "corporate development") but the gauntlet of Microsoft's senior vice-presidents is about to make that more difficult. He thinks they can get more money from "marketing and field dollars", whatever that is (later paragraphs suggest it's a different group within Microsoft).]

We should line up some small acquisitions here to jump start this if we do it. We shoudl also do this ASAP. Microsoft also indicated there was a lot more money out there and they would clearly rather use Baystar "like" entities to help us get signifigantly more money if we want to grow further or do acquisitions

[In other words, Microsoft wanted to funnel its anti-Linux payoff through third parties. Maybe in case the antitrust guys at the Department of Justice happen not to be asleep at the switch?]

[The bit about acquisitions seems more ominous when you remember that Caldera/SCO has a long history of lawsuits over obsolete technologies stripped out of dead companies ? starting with DR-DOS from Digital Research and continuing through USL's System V into the present with the IBM lawsuit.]

This Microsoft deal is the Ante to the poker game...We should get this done and go after several $2-3 Million deals from the expense side of their company.

[So their revenue plan for the future is to hit Microsoft up for money, then hit them up for more money.]

The will help us a lot and if we execute we could exit and Unix componients we have build potentially back to Microsoft or MCS.

I think they are on track and may not be able to push much more this round, but there are other ways to get money from them, their partners, investment bank referrals, etc..

Do kepp in mind that they have brough us between $82 million and $86 million if this deal is between $4million per quarter where Rich is at, or it turns into %5 million wjich is the lowest number Chris had interest in.

["Rich", in context, must be whoever at Microsoft Corporate Development was responsible for haggling with Chris (Sontag) over the magnitude of SCO's payoffs.]

[The "Ante to the poker game" is the $16-$20 million deal that was current at the time the memo was written. The $82-86 million had already been delivered. Together, they're counting on between $98,000,000 and $106,000,000 from Microsoft's corporate development division alone...]

There will be more, lons, partnerships, etc..but we need to just get this one done. It is too high profile, it is also critical, but they are not the people to pitch. We should get what we can from them ad then work the other and larger areas of the company and groups where they have real budget and need for our help.

[...and $100 million is before they hit up the rest of Microsoft.]

Let me know your thoughts.

-Mike

[There you have it. A hundred million funnelled from Microsoft to SCO, of which they have $68.5 million left. Their 10Qs reveal that every other line of cash inflow is statistical noise by comparison. The brave new SCOsource business model is now clear: sue your customers, shill for Microsoft, kite your stock, and pray you stay out of jail.]

[amigatec]

Had to reformat a bit, but here you have it. MS is the money behind the SCO lawsuits.

[amigatec]

Ping Please.

[stainlessbanner]

bttt

[Criminal Number 18F]

Had to reformat a bit, but here you have it. MS is the money behind the SCO lawsuits.

This ties in rather tidily with EV1 buying a SCO "licence" with what is widely believed in the industry to be Microsoft money.

EV1 is the porn-friendly/spam-friendly hosting company formerly known as Rackspace. (Oddly enough, its CEO or "head surfer" as he bills himself, also writes incoherent, ungrammatical English, like Chris here). The company changed names in an attempt to get its IP space de-blacklisted. It's still blacklisted with SPEWS, but then SPEWS is very hair-trigger.

d.o.l.

Criminal Number 18F

[Bikers4Bush]

This is gonna get good. Time to crack open a beer, sit back and enjoy the show.

[ShadowAce]

Tech Ping

[TechJunkYard]

The will help us a lot and if we execute we could exit and Unix componients we have build potentially back to Microsoft or MCS.

This part interests me. If SCO folds (voluntarily or otherwise) does Microsoft potentially end up owning SCO's Unix assets?

[Salo]

Nick Danger is going to have a field day with this. :-)

[Nick Danger]

Nick Danger is going to have a field day with this. :-)

The only trouble with this is that Eric Raymond has a demonstrated ability to get snookered. Remember that Howard Stern caller who claimed to be the DDOS attacker on SCO?

Maybe Eric is being more careful these days. Maybe he's being snookered again. What facts are verifiable do check out... Anderer is a long-time associate of Darl McBride; he runs a consulting company called S2 which does have a contract with SCO to advise on a "transaction," and he acquired SCO stock options as part of that contract. So he's real, he does for a living what this email would suggest he's doing here (brokering a deal for money), and he has in the past made noises about "taming the Internet" with lawyers.

I wonder if anyone will be able to acquire an evidence-grade copy of this. My hunch is that the shredders and hard-disk wipers have been humming since last night.

Usually when something like this happens that could represent a serious threat to Microsoft's interests, our resident Munchkins go silent, as if awaiting instructions on what to say. It will be interesting to see if that happens here.

[George W. Bush]

I hope IBM sues Microsoft for deliberate funding of defamatory lawsuits via proxy (SCO).

That would be an interesting case.

[hchutch]

The litigation monster has gone out of control on all sides. IBM's not exactly a wronged innocent - weren't they part of that POS anti-trust case that Janet Reno and Joel Klein pushed? You know, the one where Thomas Penfield Jackson not only talked to a reporter about a pending case, but made comments that exhibited clear bias AGAINST Microsoft?

Jackson's darn lucky he only got a smackdown from the appellate court.

[Nick Danger]

IBM's not exactly a wronged innocent - weren't they part of that POS anti-trust case that Janet Reno and Joel Klein pushed?

As I recall, the Microsoft case bagan in 1990 with a Federal Trade Commission investigation into whether Microsoft and IBM were colluding. That investigation ended in 1993 with no action taken by the FTC. The DOJ then picked it up and the rest is history.

IBM of course had their own turn in the barrel many years earlier. Unlike Microsoft, IBM was not convicted.

[hchutch]

Thomas Penfield Jackson's conduct as judge places a VERY big asterik by whatever conviction Microsoft has. Note that DOJ's settlement was quite favorable to Gates and company and that they seem to be quite flexible as to interpretation. I think that it was more about certain competitors (Oracle and Sun among them) whining after they got their butts kicked.

David Kopel's piece in National Review Online makes this point far more eloquently than I ever could.
http://www.nationalreview.com/kopel/kopel030201.shtml

[TechJunkYard]

Thomas Penfield Jackson's conduct as judge places a VERY big asterik by whatever conviction Microsoft has.

And that judge was severely reprimanded and his ruling overturned, and the case assigned to another judge.

But even with that....

The appeals court did say that Microsoft had a monopoly, "behaved anticompetitively," and should be held liable for its actions. While giving away Internet Explorer for free or even paying sites to take it did "not violate the Sherman Act," the judges said, Microsoft's Windows-only deals with computer makers did.

[Salo]

The email/memo is real as per Blake Stowell.

[Nick Danger]

The issue of whether this memo is authentic or not has been settled. SCO made a statement today that the memo is indeed real.

SCO says that the memo is being "misinterpreted" and that the consultant who wrote it was in error.

I guess it comes down to whether we choose to believe SCO, or our own lying eyes.

[Golden Eagle]

The email/memo is real as per Blake Stowell.

Let's assume that MS did invest in SCO. Well since the stock is up over 100%, I'd have to admit that was a pretty damn good investment, LOL!

[Salo]

Ok, so it's real. Now what?

[Salo]

It hasn't been SCO's day - teach them to use ms products incorrectly.

[Dinsdale]

No MS did'nt invest in SCO (doing so whould tip it's hand).

MS directed it's partners to buy licences from SCO (free money for SCO). Additionally one of MS's pet VCs invested in SCO. How good an investment that is will only be determined when they try to sell (SCO is very thinly traded, selling this much SCOX would drive it to delisting).