Details of Corel/Microsoft deal revealed

A filing with the Securities and Exchange Commission (SEC) reveals some details of the Microsoft bailout of Corel, details that were suspiciously missing when the companies announced the deal last week. In addition to specifying the resolved legal problems between the two companies, which involves Microsoft's patented IntelliSense technology, the SEC filing explains how the two companies will bring .NET to the Linux platform. And interestingly, this revelation ties in nicely with Microsoft's apparently aborted attempt to port its own Office suite to Linux: With the failure of that strategy, the company has done the next best thing: Ensure that the number two Office suite, which is compatible with Microsoft's version, continues its Linux-based existence until the Linux .NET components are in place. Linux proponents are divided on the disclosure, which is seemingly good news for the continued existence of the OS, but bad because no one in the Linux community likes to see Microsoft inching into their territory.

In the 97-page SEC filing, Microsoft agrees not to sue Corel for violations of several of its patents on Office-related technologies. The patents include "Method and system for selecting and executing arithmetic functions and the like," dating back to 1994; "Method and system for customizing a user interface in a computer system," also from 1994; and "Text checking application programming interface, a 1995 patent covering Microsoft's IntelliSense technology, which connects the application with a backend spell checker and "text checking engine." In other words, Microsoft patented the way its spelling and grammar checkers work in Office applications, where you see squiggly red and green lines appear under words and sentences that might need to be changed. Corel WordPerfect, like numerous other modern Office applications, copied this lucrative feature from Microsoft Office. Microsoft hasn't issued Corel a license to use these technologies, but has instead supplied a legal covenant under which the company may continue doing so. The distinction between the two is a bit unclear, but appears that Corel may continue using these features while its multi-year agreement with Microsoft is in effect.

The legal issues were, of course, an interesting unstated fact during the announcement about the deal, but there was far more speculation about the possibility that Corel, which has its own Linux distribution, would somehow work with Microsoft to port .NET to the Linux platform. In the SEC filing, this possibility is made very real: The two companies have entered into an agreement, to last three years, under which Microsoft may at any time require Corel to port some or all of the .NET technologies to Linux. If Microsoft decides that it does want Corel to port this technology to Linux, it will provide Corel with full access to the .NET source code, and Corel will assign at least 20 full-time programmers and 10 testers to the effort, which will be completed within one year. The two companies have numerous comments in the agreement about the quality of the people who will be involved and the work that will be completed. In essence, Microsoft will not have to pay for the porting effort and Microsoft will receive full ownership of the product when it is completed. For a company like Corel, which was nearing bankruptcy, this is essentially a deal with the devil, one in which it was clearly not bargaining from a position of leverage. Corel's agreement to port .NET to Linux is even described as a "work made for hire" agreement. This means that the bailout of Corel is all the money they will ever see for this effort: Corel will receive no royalties or future rights for its efforts on .NET.

In addition to these revelations, Corel has also agreed to continue its license for Microsoft's Visual Basic for Applications (VBA), which it incorporated into WordPerfect Office last year. And Corel will support Microsoft's Windows Media Technologies in all of its relevant Windows-based products, in a prominent way. Additionally, all of Corel's Windows-based products that are released on or after January 1, 2001 will qualify for the Windows Logo, which will ensure that those applications meet certain Microsoft-ordained standards.

As for its WordPerfect Office suite, Corel has agreed that the next major upgrade to this product, due next year, will incorporate support for the software services included in the .NET framework, which is also scheduled to ship next year. Corel has also agreed to support any future .NET technologies in its Office products no later than six months after Microsoft releases them publicly. Additionally, Corel has agreed to make its Office product services "consumable" as .NET services using Microsoft's standards for doing so. And Corel will bundle support for any applicable .NET Building Block Services, which will be supplied by Microsoft, into its products. An interesting product has also been revealed by the agreement, which explains that Microsoft may decide to release a new developer product called "Visual Studio for Applications" (VSA), "which is intended to provide the ability to customize and extend middle-tier components of distributed applications based upon the .NET Frameworks," the agreement says. Corel will support this product if it is released. In the one bone thrown to Corel, the company can still release versions of its products that do not incorporate .NET; however, Corel must put as much effort into its .NET versions as it does into its non-.NET versions.

Overall, the agreement is a stunning declaration of what $135 million can buy these days. Fears that Corel would become Microsoft's lapdog have essentially been verified by the release of this SEC filing, which is decidedly one-sided in Microsoft's favor. And comparisons to Microsoft's bailouts of Apple and Borland, while appropriate, suddenly seem fairer to the other companies involved. Of course, from Corel's standpoint, just being in business is far more desirable than bankruptcy. But it's now clear that this company paid a heavy price for its continued existence