Thursday, December 15, 2011
Small and Large Companies Need to Understand Open Source Software
The development, licensing and/or use of software has become essential to the operation of many businesses. Whether a company is in the business of selling a new application, platform or program or relies on such for its business operations, it may choose to (a) develop the software in house, (b) outsource the development to a third party or (c) it may obtain the proprietary products in connection with the purchase of a business. One of the big issues to emerge with respect to the development of software is the integration of open source software in the application, platform or program. Any company developing software, outsourcing the development thereof, or obtaining software through an acquisition, must properly diligence whether the software incorporates open source code, understand the risks associated with its use, and establish precautions to prevent the unknown integration of open source software into its key technologies.
1. What is Open Source Software?
Open source software is distinguished from the compiled ready-to-run version of software in that the program must include the source code, and it can be modified and redistributed as any developer desires. If you are not technology savvy, then imagine a screenplay for a movie that is open for use to the general public, can be revised and then freely redistributed/incorporated into another movie. This all sounds great since it seems you are getting the fruits of the labor of a software developer without having to pay for it. The issue, however, is that the use (i.e., the free license allowing the incorporation of open source into another program) is subject to certain conditions which can create big issues for a company unfamiliar with these issues.
2. How Does A Company End Up Having a Program with Open Source Source Software?
A company will end up with a program incorporating open source code if the company (a) develops a program in house and the developer(s) rely in part on open source for the development of the program, (b) outsources the development and the third party incorporates it into the program, or (c) acquires the business of a third party that is using programs developed in whole or part with open source software.
3. Why Should a Company Care if it Has Open Source Software in a Program?
Use of open source software raises three significant issues relating to: (a) legitimacy, (b) weakening of intellectual property rights and (c) licensing obligations.
(a) Legitimacy of the Code: The essence of open source software is that it is created through the contributions of many different developers. Again, think of the movie script written by a community of unaffiliated screenplay writers who contribute ideas and dialogue through the Internet, eventually creating the final screenplay. The writers never meet each other, and no one can be certain if the ideas are even original. With open source software, the community of programmers develop the program over time, without any certainty as to the original source of the code or the developer's rights, if any, to the contributed code. If you are a company that has software incorporating open source code, you have to be concerned about whether the program infringes the intellectual property rights of a third party. Because the intellectual property rights to the programs cannot be verified, and are made available generally on an "as-is" basis (i.e., without any warranties), the company using the program risks (i) infringement claims arising from its own use and (ii) indemnification claims asserted by end users (i.e., customers) and licensees of the company's technology.
(b) Intellectual Property Rights: Software not only is protected by copyright laws but may also can be patented. However, if the software contains open source, the program may be subject to obligations arising from an express or implied patent license whereby users are granted a license with respect to any claims -- in layman's terms, aspects of the patent -- incorporating open source. Moreover, some open source licenses are contingent on an understanding that use of the program precludes any patent infringement claims against a third party using and/or distributing a program incorporating the open source into their products.
(c) Licensing Issues: The fact that open source software is developed by a community of developers does not mean the program lacks any intellectual property rights. Instead, those incorporating open source into other works are utilizing the open source based on a license. Understanding the parameters of the license is important as this will dictate the license you may have to grant to third party's in your own products. The conditions relating to the redistribution of of products containing open source differ depending on whether it is subject to a permissive free software license or the copyleft licenses:
(i) Permissive: The BSD license is a permissive free licenses having relatively little requirements with respect to redistribution of the software. Permissive licences permit the redistributor to combine the licensed material with non-open source code, effectively adding restrictions to a program derived from the open source code.
(ii) Copyleft: Contrast the BSD with the GNU General Public License ("GPL"), which is a reciprocal "copyleft" license requiring that the entire source code for any programs/products incorporating the open source becomes freely available to be used, modified, and distributed by your licensees. The derived works from the source code must be distributed under the same license terms as the open source license. The result is that any modifications and derived works must be offered free under the same terms as the relevant GPL. Therefore, if source code is used in a proprietary product under a GPL, it is not only the open source but the entire source code that can be used, modified and redistributed, by your licensees. Conversely, if you distribute copies of the work without abiding by the terms of the GPL you can be sued for copyright infringement (arising from a breach of the license terms) by the original author under copyright law.
Also, be ware that there are different versions of Permissive and Copyleft licenses so the terms and conditions of the licenses can vary within each type of license.
4. How Should a Company Address Open Source Issues?
Since open source has become a significant aspect software development, below are some considerations for addressing potential issues relating to open source software.
(a) Developing Software in-house or through outsourcing: If you are developing software through your in-house programmers or outsourcing the development, take the following precautions: (i) all employee-developers and third party developers should be advised of the importance of discussing with appropriate management personnel the need or desire to incorporate open source; (ii) management and legal counsel need to review the relevant open source license(s) to determine the ramifications of using the open source code; (iii) if the company decides to proceed, the developers need to document properly the open source code that has been used; and (iv) the company needs an Invention Assignment Agreement with its employees or a clause in the outsourcing contract detailing the company's procedures with respect to integration of open source into its programs.
(b) Business Acquisition: In the context of a business acquisition, a company must due diligence the programs/technology of the target company to determine if any of the proprietary products include open source. Once the acquirer gets the complete picture with respect to open source matters, your counsel should include representations, warranties and indemnities in the purchase agreement to protect the acquirer. From a standpoint of the economics of the transaction, the acquirer also needs to determine if the utilization of open source by the target company has a negative impact on the value of the target's products and intellectual property portfolio. In addition, counsel needs to consider whether the target has properly documented the use of open source, is adhering to the relevant licenses, and if there exists a potential for claims based on misuse of the open source resulting in a revocation of the license.
The availability of open source software has provided companies with a more efficient means, both from financial and development time standpoints, to create new programs, platforms, applications and other products. However, with these new technology development opportunities comes new risks that both small and large companies need to understand. In sum, if your company is developing new technologies have proper policies and procedures in place with respect to use of open source; or if you are acquiring a company with proprietary products, scrutinize the software programs and address all open source issues before proceeding with the acquisition.
Disclaimer: The contents of this blog are for discussion purposes only and do not constitute legal advise or create an attorney-client relationship.