Halloween X: Follow The Money

Facts from the original

• Halloween IX claimed Microsoft's under-the-table payoff to SCO for attacking Linux was eleven million dollars; the actual figure, per this document, was nearly an order of magnitude larger.
• The reproduced document was emailed to the author by an anonymous whistleblower inside SCO, who said typos and syntax errors were in the original.
• On 4 March 2004, within 24 hours of publication, SCO confirmed that the memo is legitimate.
• Chris Sontag, the memo's recipient, is Vice-President and general manager of SCOsource.
• Bob Bench, on the Cc line, is Chief Financial Officer of the SCO Group.
• Mike Anderer is a consultant with a firm called S2, which bills itself as a Strategic Consulting firm, in their M&A group, and his name appears in SCO's SEC filings.
• S2 held warrants on SCO stock in July 2003, putting it in a position to profit from a spike in the otherwise unprofitable SCO/Caldera stock.
• Baystar Capital is a venture-capital firm; in 2003 SCO received about fifty million dollars from it in a deal rumored to have Microsoft behind it, which the memo confirms.
• Holders of 33.4% of the Baystar Series A stock have the right to approve or veto actions leading to contingency payments to Boies and the other two law firms.
• Anderer was negotiating his own fee for brokering the deal: 2% for Baystar, 5% for any licensing deal, and moving other work from 2% to 3%.
• The original page commentary called IPX a network stack developed by Novell, but the author later concluded Anderer more likely meant IPX, a company that exists to help set up patent litigation.
• Provisional patent applications die one year from filing date, so Anderer's applications were filed no earlier than October 2002 and converted no earlier than October 2003.
• Average pendency for software patents is 2-3 years, so the patents would most likely not be issued until 2006, if ever; applications are generally published 18 months after filing.
• Anderer wrote that the patent work would spawn at least three patents and that Ed and he were the inventors; the author believes 'Ed' is probably Ed Iacobucci.
• Acrylis was a company that Caldera, later SCO, partnered with in 2001 and later acquired.
• SCO's 2002 10-K states that on May 3, 2001 the Company acquired the WhatIfLinux technology from Acrylis, Inc.
• For Acrylis, SCO issued 1.25 million shares of common stock at $1.95 per share, about $2.4 million, paid $1.0 million in cash and incurred about $0.1 million in direct expenses.
• The allocation of consideration for WhatIfLinux was about $3.0 million to purchased technology and $0.5 million to goodwill, amortized over a three-year life.
• Anderer wrote that Microsoft will have brought in $86 million for SCO including Baystar, with a next deal worth $16-20 million.
• According to SCO's 3 March 2004 conference call, SCO's cash reserves were $68.5 million, meaning without Microsoft the company would have been at least $15 million in debt.
• The author reads the '$16 to $20' figure as a cash spread in millions, since $4M times four quarters is $16M and $5M times four quarters is $20M.
• A couple of days after October 12, SCO's stock price rose sharply from $16 to $20, raising the (farfetched) possibility that Microsoft promised a stock manipulation as payoff.
• The low-ball interpretation of Anderer's numbers is $66M — his $86M minus his high $20M figure for the second deal — essentially the entirety of SCO's cash position in its 1Q2004 10Q.
• The memo suggests Anderer wanted to shop for a wealthier patron group within Microsoft, moving from 'corp dev' (corporate development) to 'marketing and field dollars'.
• Anderer wrote that Microsoft indicated there was a lot more money and would rather use Baystar 'like' entities to help SCO get significantly more money.
• The author reads this as Microsoft wanting to funnel its anti-Linux payoff through third parties, perhaps to avoid antitrust scrutiny at the Department of Justice.
• Caldera/SCO has a long history of lawsuits over obsolete technologies stripped from dead companies: DR-DOS from Digital Research, USL's System V, and the present IBM lawsuit.
• The author suggests MCS probably equals Microsoft Consulting Services.
• The 'Rich' mentioned in the memo is probably Rich Emerson, Microsoft's Senior Vice President of Corporate Development and Strategy.
• Taken together, the memo has SCO counting on between $66,000,000 and $106,000,000 from Microsoft's corporate development division alone, before hitting up the rest of Microsoft.
• Five days after the memo was written, SCO's PR chief Blake Stowell vehemently denied that Microsoft was behind the Baystar deal.
• SCO acknowledges the memo is authentic but claims Anderer, the consultant hired to find, handle and brief the Board about such transactions, was mistaken about the deal.
• Anderer's contract with SCO includes a Statement of Work covering his role in this kind of 'Transaction'.
• IBM's memorandum in support of its motion for summary judgment on SCO's interference claims contains quotes from BayStar's Mr. Goldfarb on page 20.
• Goldfarb said Emerson and he discussed investment structures in which Microsoft would 'backstop,' or guarantee in some way, BayStar's investment, and that Microsoft assured him it would guarantee the investment in SCO.
• Goldfarb also said that after BayStar invested, Microsoft stopped returning his phone calls and emails, and that Emerson was fired from Microsoft.
• On 13 March 2004, Mike Anderer gave a NewsForge interview in which he said he suspected Microsoft may have 50 or more such lawsuits in the queue.
• On July 18, 2007, less than 60 days before declaring bankruptcy, SCO transferred the WhatIf patent gratis to a shell company called Cattleback Holdings.
• The memo itself is an email from Mike Anderer sent Sunday, October 12, 2003 to [email protected], CC Bob Bench, subject 'Conversation Friday'.
• The author is Eric S. Raymond.
• The page ends with a table of contents linking the whole Halloween Documents series, from Halloween I through Halloween XI.