Who Has a Shaky Foundation?

The commercial software licensing business as we now know it started with the move from mainframe computers to affordable personal computers and has been around for at least 20 years. Similarly, open source licensing as we now know it arguably started with release of version 2 of the GPL just a few years later.

Even though these software license and distribution models have been in effect for roughly the same period of time, "conventional wisdom" (the Freakonomics definition) appears to be that the proprietary software license model is built on a solid legal foundation, while the open source model is filled with legal uncertainty. Recent developments on the legal front for both business models remind us that these stereotypes often do not hold true.

The open source community has had a recent string of recent "wins" giving it more credibility from a legal perspective. The continual flow of BusyBox cases, including the recent initiation of an action against Extreme Networks and settlement with Super Micro Computers, Inc., has shown that the GPL can be readily enforced, particularly in cases where GPL-covered code can easily be tracked and where the nature of the software requires the type of linking or integration that would create a derivative work or modification.

In addition, Red Had recently settled a patent dispute and showed that it is possible to successfully negotiate a patent license that protects the open source community as a whole. Both Red Hat's explanation of its strategy, and Mark Radcliffe's analysis of the license terms are fascinating reading for anyone who wants to see the gory legal details that go into making open source work for everyone.

By contrast, a recent case in U.S. Federal District Court in Seattle illustrates that the very foundation of the proprietary license model is still subject to uncertainty. In Vernor v. Autodesk, Autodesk found itself on the losing end of the court's interpretation of the "first sale doctrine," a principle in copyright law that permits purchasers of a copy of a copyrighted to distribute that copy without obtaining additional permission. Another implication of the first sale doctrine is that copyright holders cannot use license agreements to control distribution of copies of their work in perpetuity.

While this Autodesk case was decided in a district court, at least two U.S. Courts of Appeals have made similar rulings, and some others have yet to address the issue directly. The difference in opinion between the Circuit Courts has not been addressed by the U.S. Supreme Court. As another indication of the momentum behind this view, William Patry, Senior Copyright Counsel for Google and author of one of a highly respected legal treatise on copyright law, stated in response to the Vernor decision that to permit a license to circumvent the first sale doctrine "is an absurd position to me, and in such cases, federal courts should take a common sense view of the transaction in order to avoid abolition of the first sale doctrine".

The first sale doctrine is consistent with some of the basic principles of open source, but it does not provide the same level of freedom that copyleft and other open source licenses provide. As a result, the Vernor decision isn't likely to impact the open source model directly.

Instead, the important message here is that no matter how exciting the successes they enjoy or how dire the challenges they face, both the open source and proprietary software license business models as we know them today have solid legal foundations and will certainly survive.

Patents: More Than Meets the Open Source Eye

Copyrights and trademarks are important assets in the software industry and their use is well-accepted by the open source community. By contrast, few software issues are more controversial than patents, and the open source community has been particularly vocal in advocating for the elimination of software from the scope of patentability. Though it would be easy for an open source company to translate the community's views into a belief that patents are not relevant to its business, such an approach would ignore the reality of patents in the software industry and place the company at great risk. A better approach is to create a patent policy that acknowledges the status of patents in the industry, implements appropriate measures to incorporate patents into business strategy, and clearly explains a company's position on software patents to the community.

As with copyrights and trademarks, patents can be tools for differentiation. Proprietary companies often pursue differentiation by collecting patents (either by harvesting them internally, purchasing them, or licensing them). These companies often choose to wield their patents offensively, affirmatively license them for a fee, and/or license them for free (or at least promise not to assert them). This is a core element of their business strategy. Community reaction to these policies usually has little impact on proprietary companies.

By contrast, open source companies often do not include patents as a core element of their business strategy, influenced in large part by their communities.The open source community (and many members of the proprietary "community" for that matter) objects to software patents on philosophical grounds, and also for the practical reason that patent threaten the very survival of popular and innovative open source projects and companies. In fact, many members of the community will not consider a company to be “open source” if it opens it copyrighted materials while claiming patents on the same technology (even if only for defensive purposes). As a result, the traditional approach for open source companies has been to establish a policy against software patents that might also include associated lobbying efforts, or to allow use of patents only for defensive purposes.

Notwithstanding the community bias against patents, open source companies should consider the benefits of differentiation that patents can offer. Once a company determines that patents are critical to its business strategy, it must decide whether to use those patents offensively and/or defensively, grant free patent licenses or covenants not to sue, or submit patents to shared pools. In fact, at least one purported open source company is experimenting with a business model under which it withholds patent rights for commercial use unless a customer purchases a license (though it appears the community will react negatively if the proposed business model becomes reality). Even when an open source company decides not to collect patents in the ordinary course of business, it should still consider whether to collect patents (or licenses) strategically on a case-by-case basis for defensive purposes. Use of patents in these ways might pass community muster if explained properly.

Finally, open source companies should be aware that their actions might define their patent policies without intending to do so. For example, adopting GPLv3, and the patent licensing obligations therein, as the licensing vehicle for an open source project implies that patented materials should not be included in community software unless there is no threat they will be enforced. While use of the GPLv3 is accepted by the community, open source companies should ensure that the patent provisions therein are consistent with its patent policies and objectives before adopting the license.

On first glance, the expense of obtaining patents, and difficulty in enforcing, protecting and exploiting them, as well as the community bias against software patents indicates that collecting patents is of little value to open source companies. However, patents can be valuable tools for differentiation, which might justify the effort and expense. In any case, there are other compelling reasons to think carefully about a patent policy and strategy. Regardless of what policy or strategy an open source company decides upon, it must always recognize the reality of patents in the software industry and consider what the community will tolerate.

In my next blog posting, we will leave the the complexity and controversy of patents behind for a discussion of trade secrets, and we will ask, "how 'open' should open be?"

Flying the Jolly Roger

I was recently talking with one of my software developer colleagues about intellectual property rights. After explaining that proper protection of IP rights is critical to sustaining a software business, my colleague responded, “Arrrrrr, shiver me timbers!” Needless to say, I was perplexed.

After a little digging, I found out that he was referring to Rick Falvinge’s Pirate Party in Sweden, a single purpose political party. These Pirates don’t want to pillage and plunder (at least not in the traditional sense). Instead, they want to reform IP and privacy laws to prevent corporate entities from exploiting them at the expense of personal privacy.

As a lawyer, the concept of property rights, particularly intellectual property rights, is central to my livelihood. That’s why I was skeptical about, maybe even threatened by, the Pirate Party’s platforms at first. After having several more pirate-talk exchanges with my colleague, I had the chance to see Mr. Falvinge at the MySQL User Conference last week. Both my colleague and Mr. Falvinge convinced me that the positions of the Pirate Party are worth pursuing … the party has real credibility. On top of that, I was greatly impressed by Mr. Falvinge's lofty goals:

• Win a seat in the Swedish Parliament with 4% of the vote.
• Act as the deciding vote in electing the Swedish Prime Minister, with a commitment that the Pirate platform would be a central objective.
• Use Sweden’s EU membership as a protective measure against trade sanctions (based on implementation of IP reforms) from the US and other trading partners.
• Achieve world domination! (OK, I added this one on my own, but these Pirates seem to think BIG).

The Pirate Party platform has some reasonable elements, but many push the discussion too far. For example, the Pirates call for limits on the term of copyright protection, but suggest an unreasonably short term of 5 years. In any case, the dialogue that results from this political movement is worthwhile and has the potential to impact our day to day lives at least as much as many of the policies outlined by the candidates in this year's US Presidential elections.

For those of you not familiar with the Pirate Party, I urge you to check into it if for no other reason than the novelty. The party has also been replicated in many countries, including the United States. If you have dismissed the Pirate Party as “fringe” or not worthy of serious attention, please take another look. You might find yourself with an eye patch and parrot recruiting your own crew to sail the seven seas, looking to loot the coffers of the large corporate sailing ships that abuse the copyright laws at the expense of individuals.