Poor Quarter For Novell Leads to Patent Lawsuits
On Thursday Novell reported another poor quarter with fiscal second-quarter earnings down 5.4 percent to $204 million and a declining cash balance of $980 million. That's bad for Novell investors, of course, but it may portend something even worse for the wider industry.
Patent lawsuits. Lots of them.
As reported, as many as 20 organizations have registered bids for Novell, most (or all) of them private equity firms. While an Oracle or a Cisco might acquire Novell for its maintenance streams and product portfolio, it's unclear that private equity firms will have the same motivation. For at least some of these, there will be serious pressure to sell Novell's assets to the highest bidder, regardless of the consequences to Novell's existing customers or to the wider industry.
This wouldn't be so bad if it weren't for the fact that Novell has a treasure trove of patents, with at least 450 patents related to networking, office productivity applications, identity management, and more.
When I worked for Novell, we didn't worry too much about a lawsuit from Microsoft. After all, Novell had (and, I presume, still has) patents that directly impact Microsoft's Office business. I could see Microsoft lining up to buy out these patents from a private equity firm, but I could also see a non-practicing entity (aka "patent troll") buying them to extort money from Microsoft.
Perhaps some would cheer, but they shouldn't.
After all, Novell also has valuable Unix copyrights (sorry, SCO) which, in turn, affect Linux. Given Novell's history in the networking market, it almost certainly owns patents that also could have a big impact on defending Linux.
Or attacking it. Depending on who gets those patents.
This same intellectual property motivated Microsoft to pay Novell a $536 million settlement back in 2004. How much would Novell's intellectual property be worth to a patent troll?
The Novell auction, in short, is a very big deal, and not just for the company that ends up acquiring Novell's business. That business has been in decline for over a decade, punctuated in the second quarter by a 17 percent slide in services revenue, 8.5 percent dip in license revenue, and a 2.8 percent drop in maintenance and subscription revenue.
But Novell's assets have arguably never been more valuable in an industry that has seen a spate of lawsuits lately.
This is not to suggest that Novell would be wrong to sell to a private equity firm. It may not have much of a choice, and many such firms will arguably do an excellent job managing Novell's assets. The critical thing is that Novell sell to a firm that understands and cares about its business.
For those of us who care primarily about Novell's Linux business, as Novell noted in its earnings call, that Linux business is doing well (once you remove the impact of the declining value of its partnership with Microsoft) and its cloud and virtualization message is resonating with service providers. This should mean that the Linux-related assets will go to a good home, and not fall into the hands of a patent troll.
Let's hope so. Novell long ago faded from many people's minds, but it has never been more relevant with its business and, by extension, its intellectual property, available for the highest bidder.
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