Trademarks: Pointing to Quality in Open Source

In my last two posts we have seen that intellectual property rights are important to open source and proprietary software businesses alike. Specifically, copyrights are not only relevant to the open source business, but copyright ownership is critical to differentiation, particularly within the dual-license and service-oriented business models, which are among the most prevalent in open source today. Another important means of differentiation is trademarks.

Protecting trademarks and branding might be the single most important action an open source company can take with respect to intellectual property rights. For open source and proprietary companies alike, trademarks associated with quality products can make a company or product stand out in a sea of customer choices. This effect is even more pronounced for open source companies, where the value of a product offering is often either software code that is freely available under an open source license or a service offering for open source code. In fact, in the open source world, a trademark might be the only means of significant differentiation.

In addition to the obvious differentiation benefits in branding, strong trademarks create other differentiation opportunities that benefit open source companies. The players in a competitive open source category will have access to virtually the same software with a focus on differences (minor in scope, but meaningful in substance) that might improve performance or add valuable functionality. These types of improvements can be done by the copyright owner itself, or by other related parties such as known developers and trusted partners. No matter who creates the improvements, an open source company will want to tie the good ones back to its own product offering by implementing a certification or partner program that establishes minimum qualifications and guidelines for use of the open source company's trademarks, with accompanying logos indicating compatibility and quality. Trademarks are the best way to tell customers they are getting the best product possible whether offered by the trademark owner directly or through partners.

Open source companies also need to devote time to developing a two-track branding strategy -- one naming scheme for proprietary offerings and another for open source projects. Without such a strategy, a company's efforts to establish strong trademarks that result in significant differentiation could be eroded, both in marketing and legal terms, by the community. Without proper usage guidelines and accompanying enforcement, use of a brand names on products modified by community members will confuse end users as to the origin of the product.

Registration and protection of trademarks is a relatively simple, low cost process and should be a primary focus of all open source companies. Because of this simplicity and low cost, open source companies should register names, brands, logos and other items in as many top tier jurisdictions as practical, and a significant effort should be made to establish certification programs that use special logos. Because trademarks can be so valuable, open source companies should also devote resources to policing and enforcing trademark rights.

Now that we have discussed two types of intellectual property rights that have great utility in creating differentiation and are relatively easy to protect and exploit, the next post in this series will focus on patents. No matter what philosophical position an open source company takes on patents, each must create a patent policy that is consistent with its business objectives and the expectations of its community.

Copyrights: Alive and Kicking in Open Source

As mentioned in my previous post, this is the first in a series of posts about the role of intellectual property rights in open source businesses. Copyrights and copyright ownership are a significant part of all open source businesses and are as relevant today as ever before.

In a world where the most popular open source license (the GNU Public License) embodies the philosophy of "copyleft," it would be easy for an open source company to ignore the value of copyrights and copyright ownership. It is even easier to ignore copyright ownership with the great success of a company like Red Hat whose business is built on a foundation of software with so many copyright owners that the concept of ownership becomes virtually irrelevant. In spite of this, open source companies must make copyrights and copyright ownership a top priority, and must implement business policies that protect and exploit copyrights as necessary to make their chosen open source business models effective.

Copyright ownership seems "old school". For decades, proprietary software companies have tightly controlled their copyrights in, and generated revenue by, granting limited scope usage rights to customers. The rise in popularity in open source business models in recent years has changed the way software companies use copyrights and the rights they grant to customers. Companies that license their software as open source, by definition, can't prevent others from exploiting their copyrights to make a better product, or by setting up a consulting or service business based on the same software. Differentiation is the only way an open source company can survive in this environment, and copyright ownership is a critical element of differentiation for any open source business models.

Most open source business models roughly fall into two categories: dual-license or service-oriented. Open source companies that retain ownership of copyrights (either by creating code themselves or through an assignment of rights from contributors) can implement a dual licensing model. While the purists in the open source world might see the use of closed source value-add components as a contradiction to the open source values, realists recognize that the value and quality of open source software cannot be sustained unless a revenue stream accompanies it. The dual license model gives open source companies that own copyrights incredible flexibility. Not only can they license their software to companies that would not typically entertain use of open source software by providing a closed source license, but they can also develop add-on components that retain the open source nature of the core software while generating value that was not previously there.

Open source companies that implement a service-oriented business model can also benefit from copyright ownership and differentiation. These companies can extend the value they provide beyond their services by creating their own add-on components for which they own the copyrights. These components can be licensed as closed source, or under a dual-license model, which gives an open source company a new level of flexibility.

Open source companies with all levels of revenue can enjoy the good news that copyrights are generally easy to protect and exploit. They are created spontaneously upon creation of copyrighted work and can be exploited through basic license agreements or through transfer of ownership. Registration of copyrighted material, which enhances a company's ability to enforce copyright infringement claims, takes very little time or money. Even in cases where copyright ownership is not deemed important as a primary business strategy, open source companies should pursue ownership and protection of copyrights to the greatest degree that makes sense for the chosen business model to preserve flexibility and enable differentiation.

In my next post, we will look into possibly the most important intellectual property right of all for open source companies: trademarks.

Practical Legal Considerations for Open Source Success - Intellectual Property Rights

This is an introduction to a series of upcoming postings on this blog dedicated to practical legal considerations for open source software companies from the perspective of inhouse legal counsel. My goal is to cut through the cloud of thought that often arises when people try to meld “open source” with “the law” and shine the spotlight on some of the critical, unique legal issues around intellectual property rights that open source companies face when defining their business strategies.

Open source software companies relish their role as disruptors and believe their business models lead to better quality software than their proprietary counterparts. While this often seems to be true, for all their differences, open source software companies rely on the same intellectual property rights for the foundation of their business as do proprietary software companies. The fundamental difference lies is how they protect and exploit those assets.

No matter how "pure" its open source beliefs, each open source company must carefully consider the role of intellectual property rights in its business. For some companies, this focus on intellectual property rights will be motivated by financial considerations. Without a solid foundation in intellectual property ownership and well considered intellectual property policies, investors (including venture capital firms and investors who purchase stock after an IPO) will be less confident about return on their investment. On the other end of the spectrum, even the purest of open source companies can benefit from clear intellectual rights policies by creating a more sustainable open source project.

The upcoming series of posts will touch on the four basic areas of intellectual property rights: copyright, trademark, patents and trade secrets, and later posts will expand this theme further to other aspects of open source businesses. As you will see in the first post, copyrights and copyright ownership are as relevant today in the open source world as ever before.

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.

OSBC: I'd Like to Report a Case of Lawyer Bashing!

I attended the first day of the OSBC today and generally felt that the legal community was well represented... except in 2 areas:

1. Brad Smith in the afternoon keynote- his talk and Q&A was intriguing, but not what the OS crowd wanted to hear.

2. The afternoon breakout by Larry Augustin - he repeated bashed lawyers as being solely responsible for delaying deals "for months". I think it would have been just as easy to make the point of what business models are effective by leaving lawyers out of it, or using the lawyer example a minimal number of times.

Besides, we all know that when those sales guys screw up the deal negotiations, they will come crying to the lawyers looking for ways to salvage revenue... and their commission! I firmly believe that lawyers should get a cut of those commissions. Even barbacks get a small % of the bar tips.

OSBC: Microsoft is Beginning to Crumble ...sort of...

I attended the first day of the OSBC (Open Source Business Conference) today in SF. I live in the South Bay, so I have a nice 90 min. CalTrain ride to ponder the day's events. Here is a summary of my reaction to the keynote event this afternoon... Brad Smith, GC from Microsoft (among other corporate titles) presented the Microsoft side of the Open Source movement. He had 30 min. to say his (clearly pre-scripted) Microsoft view, with a 30 min. panel discussion including open source reps. from SteelEye, Ubuntu, Updegrove, and RedMonk, followed by an additional 30 min. of Q&A from the audience. Here are my (minor) observations:

1. Give Brad some major props for actually showing up! The running joke was that he showed up knowing that he would have 30 min. to speak with 60 min. of grilling from an expert panel and a semi-expert audience. This sounds worse than being deposed by Johhny Cochrane in the OJ trial!

2. If you believe in the open source movement at all, you have to believe Microsoft is going to crumble someday unless they change their position significantly.

3. Even if Microsoft is on a crash trajectory, they will still make at least $200 billion over the next 5 years before it becomes an issue their investors, board and execs care about. Maybe this gives them time to achieve a soft landing into the OS community, at least if they don't completely alienate themselves in the meantime.

4. Linux is clearly the wave of the future....

5. Can Linux distributions surpass 30% market share and achieve $10 billion in revenue in the next 5 years? (if not, who or what will break the Microsoft monopoly?!?)

6. Can Linux and open source projects in general survive the obtuse patent licensing scheme proposed by Microsoft?

In summary, Microsoft has taken the approach of an abusive spouse... yeah I smack you around a little bit, but you should be happy I put food on the table... by the way, I love you!

That crew in Redmond just doesn't get it yet. Or maybe they do, and they are going for the soft-landing approach. Maybe every one of us in the open source community should encourage them to move faster by sending Steve Ballmer and Brad Smith a soda in protest! (http://www.cnet.com/8301-13505_1-9868659-16.html?%255E$) Flood their offices!