For months, some in the software industry have speculated that Microsoft is surreptitiously and indirectly funding the SCO Group Inc.'s copyright-infringement campaign against Linux users and distributors. That speculation finally proved too difficult to ignore for SCO Thursday, when the company refuted it.

SCO maintains that parts of its copyrighted Unix System V source code were illegally used in the Linux open-source operating system. Linux has been winning converts at the expense of Microsoft Windows.

A leaked E-mail posted Wednesday on the Open Source Initiative's Web site appeared to provide evidence that SCO employees and a consultant were looking to Microsoft to help fund SCO's legal strategy and licensing initiatives.

The contractor reportedly is Mike Anderer, a consultant with S2 Strategic Consulting LLC. Open Source Initiative president Eric Raymond posted the E-mail and outlined in an article on the site what he sees as an inappropriately private partnership. OSI is a nonprofit corporation that manages the open-source trademark.

SCO vouched for the authenticity of the Oct. 12, 2003, E-mail exchange referred to by Raymond. It was sent from Anderer to Chris Sontag, SCO's general manager of SCOsource licensing, and SCO CFO Bob Bench. In it, Anderer writes that Microsoft was responsible for $86 million in funding to SCO. This includes a $50 million investment in SCO last October by venture fund BayStar Capital.

Anderer also wrote: "Microsoft also indicated there was a lot more money out there and they would clearly rather use BayStar 'like' entities to help us get significantly more money if we want to grow further or do acquisitions." (InformationWeek corrected misspellings in Anderer's quote.)

SCO issued a statement that reads, in part, "We believe the E-mail was simply a misunderstanding of the facts by an outside consultant who was working on a specific, unrelated project," according to the statement. "Contrary to the speculation of Eric Raymond, Microsoft did not orchestrate or participate in the BayStar transaction.

Microsoft did buy Unix licenses from SCO twice in 2003, paying SCO a total of $16.6 million, which represents about 21% of the company's revenue for last year, according to a 10-K report filed for the fiscal year ended Oct. 31, 2003. Together, Unix licenses sold to Microsoft and Sun Microsystems accounted for 33% of SCO's overall revenue in 2003.

Raymond contends that Microsoft was involved in a venture-funding deal that took place last October when BayStar Capital invested $50 million in SCO. That gave BayStar about 3 million SCO shares, representing about 17.5% of the company at that time. BayStar's other investments include Genus Inc., a maker of chip-making equipment; Neoware Systems Inc., a maker of served-based software; and several biotechnology and pharmaceuticals companies.

No one answered S2's phone in Salt Lake City on Thursday. Microsoft did not return calls on the issue placed by InformationWeek sister publication CRN. However, it has denied past published reports that it played a hand in the BayStar investment in SCO.

CRN's Paula Rooney contributed to the reporting of this story.