I have been reading the debate about “Open Core” which was stimulated by Jorg Janke post about Compiere. http://www.compieresource.com/2010/06/compiere-open-source-failed.html. The open source community owes Jorge Janke a huge debt of thanks for his frank discussion of what happened at Compiere. People are rarely eager to share the details of their failures. I think that the most important lesson from his posting is the critical importance of management that understands its market. The venture capital industry learned this lesson long ago. When making a decision about an investment, venture capitalists focus on the management team; they understand that the technology is important, but great execution with mediocre technology will win over poor execution with great technology. This rule has been established by decades (and thousands) of investments. Open source companies pose particular challenges for management because of the critical role of communities and their expectations in the success of the company. These issues are very different from traditional software companies. Compiere is a very telling example of the nature of those challenges.
This post has launched a discussion of the “open core” business model and whether it is true “open source” http://www.computerworlduk.com/community/blogs/index.cfm?entryid=3047&blogid=41. I have great respect for Simon Phipps and his contributions to the open source community, but I strongly disagree with his statements. I am very concerned that if he is successful, end users will have fewer software programs under open source licenses. This result arises because of the law of unintended consequences: the successful demonization of the open core model will result in fewer venture capital investments in companies using open source licenses.
In the interest of transparency, I work with over twenty open source companies, most of who were funded by venture capitalists and the vast majority of which use the “open core” model. These companies have provided significant value to end users through the software licensed under open source licenses. Simon states: “But to use the package effectively in production, a business probably won’t find the functions of the core package sufficient, even in the (usual) case of the core package being highly capable.” This statement is simply incorrect. I have sat through many Board meetings and, in fact, the conversion rate from “open source” to “commercial” licenses is generally less than 10% for these companies. Thus, more than nine out of ten end users find the functionality of the open source version satisfactory.
Simon says that open core does not provide software freedom for “end users”. Yet, nothing prevents the end users of the open source version to modify it and distribute it or otherwise exercise the rights under the license. In fact, Compiere demonstrates the fallacy of this position because it created two different forks. Simon complains about the lack of access to the “commercial extensions” of open core programs. However, as Marten Mickos notes, the effect on the end user of the employment of the Apache license is the same as the open core model: commercial extensions are not made available to the community. http://webmink.com/2010/06/24/links-for-2010-06-24/#comment-870. I agree with Matt Aslett that the open core model does not violate the Open Source Definition, either literally or in spirit. http://blogs.the451group.com/opensource/2010/07/02/open-core-is-not-a-crime/. (please note that this position is a personal one and does not reflect the view of the OSI which has not yet taken a position on this issue). Simon appears to be suggesting that only a “copyleft” approach in which all of the software must be available under an open source license to meet the Open Source Definition, which is simply incorrect (the Open Source Definition was a reaction to the limitations imposed by the copyleft approach).
I agree with Matt at one level that ultimately this debate will be decided by the market (i.e. end users). However, I don’t agree that it is futile. Most venture capitalists will not invest in companies that do not use the open core model, so if the open source community leaders are successful in demonizing the open core model, they will decrease the willingness of venture capitalists to invest in open source companies (just a reminder, that a recent book, Mastering the VC Game, recently noted that venture capitalists typically look at 300 companies for each company in which they invest). Although not all open source projects need venture capital support, venture capitalists have been a significant source of support for open source projects (as well as new software made available under open source licenses) and end users have been the beneficiaries of their investment. If the open core model is no longer considered open source, the biggest losers will be the end users; they will lose the opportunity to benefit from that investment and that is certainly not consistent with the goals of open source
On June 28, 2010, the United States Supreme Court issued its long-awaited decision in Bilski v. Kappos, No. 08-964, slip op. (June 28, 2010). The Supreme Court was presented with the issue of whether the Federal Circuit’s “machine or transformation” test is the sole test for determining whether a process is patentable under 35 U.S.C. § 101, and more generally, whether business methods can be patentable. The patent application which was the subject of the case tried to patent methods for hedging risk in the field of commodities trading. The claims were classic “business method” claims: they recited steps that were performed as part of a business operation. The patent application was rejected by the Patent and Trademark Office and lost on appeal to the Court of Appeals for the Federal Circuit.
Although the Bilski decision was expected to have a dramatic effect on the patent world and, in particular, the patentability of software, the decision is surprising for how little it decided. The Supreme Court split into a majority opinion and two concurring opinions. The majority of the Supreme Court agreed only on three points: (1) the Federal Circuit’s machine-or-transformation test is not the exclusive test for patent subject matter eligibility; (2) business methods are not categorically unpatentable; and (3) the invention at issue in Bilski is an unpatentable abstract idea.
The critical part of the decision is as follows:
Today, the Court once again declines to impose limitations on the Patent Act that are inconsistent with the Act’s text. The patent application here can be rejected under our precedents on the unpatentability of abstract ideas. The Court, therefore, need not define further what constitutes a patentable “process,” beyond pointing to the definition of that term provided in §100(b) and looking to the guideposts in Benson, Flook, and Diehr.
And nothing in today’s opinion should be read as endorsing interpretations of §101 that the Court of Appeals for the Federal Circuit has used in the past. See, e.g., State Street, 149 F. 3d, at 1373; AT&T Corp., 172 F. 3d, at 1357. It may be that the Court of Appeals thought it needed to make the machine-or-transformation test exclusive precisely because its case law had not adequately identified less extreme means of restricting business method patents, including (but not limited to) application of our opinions in Benson, Flook, and Diehr. In disapproving an exclusive machine-or-transformation test, we by no means foreclose the Federal Circuit’s development of other limiting criteria that further the purposes of the Patent Act and are not inconsistent with its text. http://www.supremecourt.gov/opinions/09pdf/08-964.pdf
The majority opinion was not revolutionary, but more of a course correction. The Supreme Court affirmed the Federal Circuit’s judgment that the business method was not patentable. At the same time, it found that the Federal Circuit had an improperly narrow view of patent subject matter eligibility. After dismissing the Federal Circuit’s machine or transformation test as the sole test for determining patentability of process inventions, the Supreme Court refrained from offering any alternative tests or any guidance.
The decision strongly suggests that software remains patentable, although the Supreme Court was careful to state that it was not deciding that any class of technology was patentable. In fact, the most interesting results in the decision come from analysis of the concurring opinions. In a very perceptive comment, the PatentlyO blog http://www.patentlyo.com/patent/2010/06/bilski-v-kappos-and-the-anti-state-street-majority.html, notes that by combining the votes of the justices in the two concurring opinions, five justices have rejected the State Street test of useful/concrete/tangible-result. As the PatentlyO blog notes State Street was the broadest formulation of the scope of patentability and it is rejected by five of the justices (although not formally disavowed in the majority opinion). The other interesting result of analyzing the votes in the concurring opinions is that four justices were prepared to find that business methods are not patentable. Those four justices need only one more vote to have a majority for excluding business methods from patent protection. Both of these results suggest the way in which future cases may be decided.
The decision is likely to increase the use of eligibility of patent subject matter as a litigation defense, but will have a less clear effect on patent prosecution. Given the lack of guidance on the standards of patentability, the Patent and Trademark Office will need to find to develop its own tests. Patent law is likely to remain uncertain in this area for some time to come.
As I noted in my earlier post http://lawandlifesiliconvalley.com/blog/?p=468 about the recent German Supreme Court decision, Bilski should encourage software companies to include patents as an important part of their intellectual property strategy.
The Mozilla Foundation has started the process of revising the Mozilla Public License (“MPL”) and has published the first drafts in the process. You can read the proposed changes to definitions and licenses and comment on them. https://mpl.co-ment.com/text/KVR6Y3hsirl/view/. I am very familiar with the MPL because we used it as the base for the CDDL which I drafted with Sun’s lawyers for the open sourcing of the Solaris operating system.
The changes are a welcome simplification to the MPL definitions and license grant. In particular, the definition of “Modifications” has been changed to delete the phrase “any addition to or deletion from the substance or structure of either the Original Code or any previous Modifications” and the definition of Modification is now based solely upon “files”. This change is very important because of the vagueness of the deleted phrase.
Mozilla has also spent significant effort in revising the terms of the patent license to use a more traditional approach, clarifying the license grant and the definition of patent claims. However, the modifications do not appear to have modified the scope of the license grants. Most of these changes represent moves of phrases from the license grant in the current MPL to the definition of “Patent Claim” in the new version. The patent licenses are now reciprocal, instead of having separate licenses for the Initial Developer and, then, for Contributors. In fact, the new definitions have deleted the definition of Initial Developer and now incorporates the concept in the definition of “Contributor”.
In addition, the new draft has deleted the requirement to provide notice of any third party patent claims in a Modification or Contributor API which is known to the Contributor (this requirement in Section 3.4 of the current version of MPL):
(a) Third Party Claims.
If Contributor has knowledge that a license under a third party’s intellectual property rights is required to exercise the rights granted by such Contributor under Sections 2.1 or 2.2, Contributor must include a text file with the Source Code distribution titled “LEGAL” which describes the claim and the party making the claim in sufficient detail that a recipient will know whom to contact. If Contributor obtains such knowledge after the Modification is made available as described in Section 3.2, Contributor shall promptly modify the LEGAL file in all copies Contributor makes available thereafter and shall take other steps (such as notifying appropriate mailing lists or newsgroups) reasonably calculated to inform those who received the Covered Code that new knowledge has been obtained.
(b) Contributor APIs.
If Contributor’s Modifications include an application programming interface and Contributor has knowledge of patent licenses which are reasonably necessary to implement that API, Contributor must also include this information in the LEGAL file.
This deletion is important because of the difficulty of complying with this obligation.
I look forward to reviewing the rest of the modifications. I am particularly interested in whether Mozilla will modify the “patent peace” provision in the current version of the MPL which has proved a problem for many large companies.
8.2. If You initiate litigation by asserting a patent infringement claim (excluding declatory judgment actions) against Initial Developer or a Contributor (the Initial Developer or Contributor against whom You file such action is referred to as “Participant”) alleging that:
(a) such Participant’s Contributor Version directly or indirectly infringes any patent, then any and all rights granted by such Participant to You under Sections 2.1 and/or 2.2 of this License shall, upon 60 days notice from Participant terminate prospectively, unless if within 60 days after receipt of notice You either: (i) agree in writing to pay Participant a mutually agreeable reasonable royalty for Your past and future use of Modifications made by such Participant, or (ii) withdraw Your litigation claim with respect to the Contributor Version against such Participant. If within 60 days of notice, a reasonable royalty and payment arrangement are not mutually agreed upon in writing by the parties or the litigation claim is not withdrawn, the rights granted by Participant to You under Sections 2.1 and/or 2.2 automatically terminate at the expiration of the 60 day notice period specified above.
(b) any software, hardware, or device, other than such Participant’s Contributor Version, directly or indirectly infringes any patent, then any rights granted to You by such Participant under Sections 2.1(b) and 2.2(b) are revoked effective as of the date You first made, used, sold, distributed, or had made, Modifications made by that Participant.
Section 8.2(b) has made many large companies reluctant to contribute to MPL licensed software because of its potential to limit the flexibility of a contributor in using its patent portfolio against products and software other than the MPL licensed software.
MPL has the opportunity to play an important role as the license of choice between pure copyleft (such as GPLv2) and pure permissive (such as BSD and Apache). However, it has not been able to fulfill that role because of the concerns raised by the ambiguity of its scope (the Modifications definition and notice obligations) and its expansive approach to “patent peace”. I hope that these revisions will make the MPL attractive to a broader set of users.
I congratulate the Mozilla Foundation for taking the initiative and hope that the result will be a more attactive alternative between GPL and Apache. I encourage the community to participate actively in the revision to make the new version of the MPL as valuable as possible!
The results are in for the first quarter in venture investing and they are positive. After a tough 2009, the first quarter resulted in a significant increase in venture capital investing. The Dow Jones report for global venture capital investments increased by 13% over last year http://bit.ly/1Q10Glbl. The US continues to take the lead with 65% of deals by numbers (and 67% by value). This growth is confirmed by my discussions with Silicon Valley Bank who have told me that they have seen a significant increase in the number of new bank accounts opened for startups. In fact, SVB told me that the number of new accounts in March was more than all of the accounts opened in both January and February. This increase reflects the general optimism expressed in DLA Piper’s 2010 Technology Leaders Survey. http://www.dlapiper.com/US/news/detail.aspx?news=694c8f9d-faf5-40d2-8018-7c352437288f.
The growth in the US was roughly the same as the global average at 12%. http://bit.ly/1Q10Fin. Venture capitalists invested $4.7 billion in 578 deals. And the shift in the relative amounts of investment among industries continues to shift. For a long time, IT represented more than 50% of deals, yet in the first quarter, IT was only 32% of the deals. The IT investments in the first quarter represented a 15% increase over the same period last year. However, the cleantech category increased by more than 69% in the same period.
But I think that these comparisons in the IT sector may mask the new reality of starting software and web companies where the cost of developing a product has plunged due to the use of open source software and cloud services. In the past, a software startup would need to buy its own servers and proprietary software development tools, representing significant capital expenditures. Now, most of my software companies use open source and other pre-existing software to “assemble” their products and host them on the cloud. They require much less money to start; and they wait to seek traditional venture capital until they are much further along in product development and distribution.
On February 10, 2010, the Linux Foundation and the Open Source Initiative co sponsored their first Legal Strategic Planning Session. I am glad to declare it a success. We had a very diverse group both professionally and geographically, with participants from Europe, Japan and the US.
We started the day with a discussion by Damien Eastwood (formerly of Sun Microsystems, Inc.) about his experience, both legal and practical, in moving Java and Solaris to open source models. We then had a series of presentations on license due diligence from FSF Europe and Hewlett Packard. We also discussed the increasing problem of license compliance through a constantly changing tool chain and the potential to have a consistent industry wide approach to this “Bill of Materials” problem. Heather Meeker provided an overview of the trademark issues arising in open source licensing.
Simon Crosby from Xen provided an overview of cloud technology which is the latest challenge for the FOSS community. Our luncheon speaker was Marten Mickos, who provided a business perspective on the open source model. Rob Tiller provided an overview of opensource.com. We also had a panel discussion of how best to respond to patent claims in a way which will not create problems during the litigation. Karen Copenhaver and I provided an overview of the status of the ALI Principles of the Law of Software Contracts. We finished up with a wine tasting from Pine Ridge arranged by Andrew Aitken of Olliance Group.
Karen Copenhaver deserves special thanks for conceiving of the opportunity and then organizing the first one (always, the toughest!). Given the number of legal issues for the FOSS community, I am sure that we will need to continue this tradition. if you want to learn more about the discussion, Karen Copenhaver and I will be summarizing it in our Black Duck webinar on Tuesday, February 23 http://www.blackducksoftware.com/files/legal-webinar-series.html.
On February 10, 2010 the Linux Foundation and the Open Source Initiative will host a Strategic Planning Session for lawyers active in support of adoption of free and open source software. As we begin a new year and a new decade, we invite you to join us to consider what legal issues we anticipate may arise and what foundations we might be able to lay to support continued unimpeded development and deployment of free and open source software.
The purpose of the meeting is to collectively look forward and to consider new issues, new venues, and new technologies.
What do you foresee as the challenges that the community will face in 2010 and beyond?
The session will include panel discussions and updates, but the entire day will be more of a conversation than a lecture. We want you to come prepared to participate! Some of the topics that have been suggested already include: education of the community on patent matters; the Risk Grid and the Linking Project underway at FSFE; lessons learned from the license proliferation discussion and other comet-like issue phenomena in the open source ecosystem; how FOSS and commercial interests will co-exist and change each other in the longer term; and updates on FOSSBazaar and the SFLC activities. We are seeking your suggestions for topics to discuss in the registration process and we hope that you will be thoughtful in your response. We also hope to have several seminars by engineers on certain technical issues which are important to legal analysis.
Date: February 10, 2010
Time: 8:30 a.m. to 5 p.m.
Location: DLA Piper LLP, 2000 University Avenue, East Palo Alto, California 94303-2214
Costs: There will be a cover charge of $30 to cover catering costs for this event but there will be no conference fee.
Registration: http://events.linuxfoundation.org/component/registrationpro/?func=details&did=29
Please register early as space is limited. For more information please contact: Karen F. Copenhaver (kfc@choate.com) or Mark Radcliffe (mark.radcliffe@dlapiper.com)
When Microsoft contributed drivers to Linux to GPLv2, my reaction (and the general reaction in the community) was that “hell had frozen over” and to bring out the skates http://www.microsoft.com/presspass/features/2009/Jul09/07-20LinuxQA.mspx. Several recent reports suggest that these contributions were not voluntary and Microsoft had included GPLv2 licensed code in these drivers http://linux-network-plumber.blogspot.com/2009/07/congratulations-microsoft.html (Steve Hemminger of Vyatta) and http://www.kroah.com/log/linux/microsoft-linux-hyper-v-drivers.html (Greg Kroah-Hartman of Novell).
I view this contribution as valuable even if legal concerns drove it. I think that Microsoft acted as a responsible member of the community which is the behavior that we want to encourage. They could have simply rewritten the code to remove the open source components. I am under no illusion that Microsoft has suddenly turned into a complete supporter of open source (and for clarity, neither I nor my law firm represents them). However, Microsoft’s engagement with the open source community is going to be a gradual one and will have fits and starts. Microsoft is still fundamentally based on a proprietary model and has that mind set. They can change and should be encouraged to change. I hope that these revelations will not result in an attack on Microsoft for not being “truly” committed to the open source community. We should, instead, encourage them to continue to be involved.
This situation is a warning to companies that they need to have an open source policy and a process for managing their work with the open source software. See my earlier post, http://lawandlifesiliconvalley.com/blog/?p=107.
In fact, I think that the Microsoft press announcement bears further scrutiny, In addition to the announcement of the contribution, Sam Ramji mentions several ways in which Microsoft is implementing open source in their business strategy. This increased use of open source by Microsoft should be encouraged.
I am participating in SDForum’s Global Open Source Colloquium for the third year. This Colloquium is held the day before OSBC. http://www.sdforum.org/index.cfm?fuseaction=Calendar.eventDetail&eventID=13371 The event is always fun because it is much smaller than OSBC and permits you to interact with the speakers on a personal basis. The speakers are always drawn from major figures in the open source industry with a leavening of speakers from overseas.
This year has a particularly interesting set of presentations with Larry Augustin as the keynote. Larry is a seasoned entrepeneur and a very successful investor in open source companies. We will also have several panels with open source CEOs which focus on the global market. And we will have a great panel of venture capitalists who invest in open source (I know because I will moderate the panel!).
The Colloquium will begin at 11:30 am at the Palace Hotel on March 23. I hope to see you there!
March is the open source month: we start with the Open Source Think Tank and end with OSBC. This year the Think Tank was particularly interesting because we decided to move away from more general questions about the future of the industry to focus on how to deal with particular business problems. Andrew’s team from the Olliance Group did an excellent job in setting up these questions We continued to use the format from past Open Source Think Tanks, with the questions discussed by groups of eight to ten participants. This year Olliance Group also introduced real time voting on questions (look for some interesting details in the white paper from Olliance Group). For those of you located in Europe (or who can travel there), we will be having our Second Annual Think Tank in Paris in the fall.
However I think that the most interesting discussion was the panel with Marten Mickos and Michael Olson on their experience in selling an open source startup to a large company. They focused on the cultural challenges and how to deal with them. I also provided an update on legal issues, with the Jacobsen case being the most important. You can see my slides at http://www.slideshare.net/markradcliffe/2009-think-tank-final-update
Despite the terrible weather, we had over 90 attendees. As before, the most fun was spending time with those who are both knowledgeable and passionate about open source and its future.
PS: We had a very interesting discussion about the potential need for a Commercial Open Source Trade Association, but more on that in a separate post.
Legal issues continue to critical to the successful development and use of open source. And these issues are becoming more important with the increase in open source litigation http://lawandlifesiliconvalley.com/blog/?p=134. To assist the community to understand these issues, Black Duck Software has organized a series of webinars on legal topics. http://www.blackducksoftware.com/files/legal-webinar-series.html. Black Duck has selected Karen Copenhaver of Choate Hall & Stewart and I will be providing the seminars. Karen is the former General Counsel of Black Duck Software and counsel to the Linux Foundation, among others open source companies. She is one of the most thoughtful open source lawyers that I know and has been a leader on many legal issues for the community, such as the Jacobsen amicus brief and the ALI ABA proposals. We have the scheduled the following topics:
- Introduction to Open Source Software Licenses– Wednesday, January 28th, 11:30am ET
- Understanding the Top 10 Open Source Licenses- Wednesday, February 11th, 2pm ET
- Developing in a Hybrid Open Source-Proprietary World - March
- Best Practices in Managing Open Source - April
- Open Source Due Diligence in M&A and Financing - May
- Insights and Lessons from Open Source Case Law - June
And the price is right: free! We hope that you can join us.