DOJ blocks EMC/VMware from acquiring Virtualization Patents from Novell

EMC, the majority owner of VMware, has agreed with the Department of Justice not to acquire 33 Virtualization Patents from Novell as part of a side-transaction in the acquisition of Novell by Attachmate.  The Statement from the Department of Justice sheds significant light on the deal that had been struck between Novell and a newly-created company formed by Microsoft, EMC, Apple, Oracle to acquire a portfolio of patents for $450M, and the anti-trust threat that the Department of Justice saw to the Open Source community.  And whilst  the spotlight has been on Microsoft’s role, it seems that the role of EMC in seeking to acquire Virtualization patents was at least as concerning to the Department of Justice.

Under the terms of the original deal, at the same time as Attachmate acquired Novell, a newly-formed company called CPTN Holdings would acquire a portfolio of 882 patents from Novell, and then Microsoft, EMC, Apple and Oracle would each acquire some of these patents from CPTN Holdings.

The Department of Justice and Germany’s Federal Cartel Office (Das Bundeskartellamt) investigated this transaction because in their view “as originally proposed, the deal would jeopardize the ability of open source software, such as Linux, to continue to innovate and compete in the development and distribution of server, desktop, and mobile operating systems, middleware, and virtualization products.”  On 20th April,  both the DOJ and Germany’s Federal Cartel Office announced they had come to an agreement with Microsoft, EMC, Apple and Oracle which will allow the merger to proceed, although the patent issue is not yet resolved and the Department of Justice is still investigating the distribution of patents amongst the four parties.

Under the agreement with the DOJ, the patents are still sold to CPTN Holdings, but when they are sold back to the consortium members they are subject to the GNU General Public License, Version 2 (GPL) and the Open Invention Network (OIN) License.  This in turn implies that the members of the consortia would be required to license the patents on to any end-user and to anyone prepared to distribute their software under GPL, and has the effect of protecting the Linux community from the exercise of those patents.

Two members of the consortia have agreed to additional conditions.  The first is Microsoft, who have agreed that they will acquire the patents from CPTN Holdings, and then sell them back to Attachmate who will re-license them to Microsoft.  Indeed, as part of the new agreement Microsoft will gain licenses to all 882 patents under consideration.

The second vendor to agree to additional conditions is EMC.  It has agreed not to acquire 33 Novell patents and patent applications that have been identified as related to virtualization software. Presumably these were being acquired to license on to VMware, and the DOJ has objected to the possibility they could be used to inhibit competition with Open Source alternatives such as Red Hat Enterprise Virtualization.

Microsoft had always insisted its objectives were to allow its own use of the patents, not to restrict their use by others, and it appears to have achieved this very effectively.  This set of agreements seems to be as strong as the Open Source community could have hoped for in ensuring the continuing availability of those patents for open source software, in that any patent that passes through the transaction out to one of the consortium members is irrevocably licensed to the open source community under OIN. Indeed, by acquiring and then selling on the patents, Microsoft can be seen to be doing a great favor to the open source community as a side-effect of protecting it’s own interests.

The one issue that the DOJ hasn’t been able to force, is exactly which set of patents are sold to CPTN as part of the transaction. For example it is entirely possible that since EMC is no longer committed to buying the Virtualization patents from CPTN, Attachmate would seek to retain them at this stage and sell them to EMC or VMware at a later date.   It is still open to Novell/Attachmate to retain the patents during the acquisition, and then to negotiate separate deals subsequent to the transaction.  The agreement amongst the DOJ  Microsoft, EMC, Apple and Oracle simply  indicates “neither CPTN nor its owners will make any statement or take any action with the purpose of influencing or encouraging either Novell or Attachmate to modify which of the patents are available under the OIN license.”  However, the DOJ has indicated it is still concerned about the distribution of these patents amongst the consortium members, and any deal would be subject to further investigation.

The acquisition of Novell has turned out to be a very complex and protracted affair.  It is now clear, however, that the DOJ is prepared to intervene if it perceives a concerted action amongst large vendors has the potential to stifle innovation in Open Source, and specifically in Open Source Virtualization.  The question remains as to whether the $450M price for the patent assets is justified, given they will be licensed to the Open Source community in this way.  However, as the deal closes we look forward to considering the exciting possibilities for SuSE and Attachmate/NetIQ resulting from the merger.

The department said that these changes were necessary to protect competition and innovation in the open source software community.
Microsoft, EMC, Apple, Oracle
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