The landmark technology collaboration agreement between Microsoft and Novell that was announced earlier this month took a controversial twist when Microsoft CEO Steve Ballmer later proclaimed that Linux customers have "an undisclosed balance sheet liability" because Linux "uses our intellectual property." Novell CEO Ron Hovsepian provided his views on the ensuing controversy, along with a behind-the-scenes account of how the agreement was reached, in an interview Tuesday with Don Tennant.

How did the agreement with Microsoft come to pass? Who approached whom, and when?

This past May, I picked up the phone and called Kevin Turner, the COO at Microsoft. I knew Kevin when he was the CIO at Wal-Mart. I said, 'Kevin, I'd like to have a conversation about what the customer needs. If you could put back on your old hat as a customer, if I came in and started talking to you about virtualization on Linux, and this Microsoft guy showed up and started talking to you about virtualization on Windows, what would you say to us?' Kevin, being a good ex-IT executive, said, 'I'd want both of those things together. I don't want the fighting, I don't want to deal with it. I'd tell you two guys to go figure out how to make it work.' I said, 'Well, that's why I'm calling. How do we make that work around virtualization?'

My point of view is that customers are going to have J2EE stacks and .Net stacks in their shops. If I'm a CIO, that's what I'm dealing with: 'What are you guys doing to make my life easier to make those things work together?' I saw virtualization as a key to us being able to do that in a different manner than we have in the past. That was the genesis of the whole conversation: calling up an old customer and having a conversation at the customer level. And then it took a lot of twists and turns.

How would you characterize Microsoft's reaction?

Kevin, true to form, said, 'You're absolutely right, that is how my brain would think as a customer. Wow, that's pretty different, us working with you guys.' There has been a love-hate thing for a long time between the two companies, meaning we both love to hate each other. So Kevin called [Microsoft CEO] Steve [Ballmer] and the rest of the team and approached it from a customer perspective. A week later we were all sitting in Chicago having a discussion about virtualization.

What was your reaction when you heard about Ballmer's "undisclosed balance sheet liability" comments? Did you feel like you'd been blindsided?

You don't want to get caught off-guard on any of those things. I do know things can be taken out of context, so I never overreact too far one way or the other. Obviously, I was disappointed, because the heart and essence of the deal was around the technology collaboration and what we want to get done for the customer. I know they're very committed to that -- we've been having our regular conference calls with [senior vice president of Microsoft's server and tools business] Bob Muglia. We're right on our schedule to get all the details out in a reasonable time period.

We do not see any infringements, and we are not going to agree to any. Their desire to do some things around IP [intellectual property] came up as one of the things they wanted to talk about. We said, 'Sure, we'd be happy to talk about some of those IP things.' Because we have our own portfolio of IP, and we saw that when you look at the math, the balance of trade was US$108 million to us and US$40 million to them.

We never changed our position. All I cared about was, I lost a deal with a large retailer to Microsoft for the first time about 12 or 18 months ago. It was going to be an all-Linux deal, and I lost it because they were unduly influenced, in my opinion, to be fearful of these [IP and indemnity issues]. From my point of view that was really too bad, because Linux lost. Then I watched it happen three more times.

Do you think Microsoft is spreading a lot of fear, uncertainty and doubt about the risk of IP violations if companies adopt Linux?

They were sharing their position in the marketplace as they saw it through their lens.