Rivals Ally in Linux Link

A Microsoft and Novell deal means more heat for Red Hat.
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Updated from 4:05 p.m. EST

Microsoft

(MSFT) - Get Report

and

Novell

(NOVL)

have entered into a partnership aimed at strengthening the smaller company's position in Linux and making Windows and the popular open-source operating system work together.

The news gave Novell shares an immediate boost, and the stock closed Thursday up nearly 16% to $6.79.

Microsoft CEO Steve Ballmer said Thursday that a set of agreements between the two companies "will help bridge the divide between open-source and proprietary-source software."

The agreements cover a number of areas:

Novell and Microsoft will work together to make the two operating systems, as well as Office and the Linux-based Open Office application suite, work together with fewer of the technical glitches that plague the many companies that already run both operating systems. Ballmer, long known as an opponent of Linux, said the initiatives "were driven by what our customers told us."

Microsoft and Novell, which have had a contentious relationship, agreed not to sue each other or customers over patent-related issues. "We want to provide patent peace of mind for our customers," Ballmer said.

Microsoft also agreed not to sue individual developers of Linux, many of whom work on their own initiative without legal protection from an employer.

Microsoft will add its considerable marketing muscle to distribute Novell's Suse Linux and promised to distribute Linux coupons to 70,000 of its customers.

The Linux announcement is likely to put more pressure on

Red Hat

(RHAT)

, whose version of the free operating system has a commanding lead over Novell's version. Earlier this month,

Oracle

(ORCL) - Get Report

announced that it will be offering support for Red Hat Linux at a steep discount. That news knocked more than 25% off the value of Red Hat shares.

Red Hat closed Thursday off 2% to $16.10.

Separately, Microsoft said that it will release the business version of the long-anticipated update to its flagship operating system at an event at the Nasdaq Stock Market on Nov. 30. The company did not say when Vista, as the new version of Windows is called, will be ready for consumers, although it is expected in January.