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Just a reminder, these posts are not legal advice. This site is the personal blog of Mark Radcliffe and the opinions expressed are those of Mark Radcliffe and not those of his clients, DLA Piper or the clients of DLA Piper.

About Me:

Mark Radcliffe

I have been practicing law in Silicon Valley for over thirty years assisting startups and global companies develop and market innovative products and services. I have participated in multiple business cyles in Silicon Valley from hardware to software to internet to cloud. My projects have included developing the dual licensing business model for open source startup, developing the original domain dispute resolution policy for NSI and assisting Sun in open sourcing the Solaris operating system. Recently, I served on the US Japan Innovation and Entrepreneurship Council (one of ten members) to develop a plan to encourage the innovation in Japan and the United States. I have been working with the same attorneys since 1986 although we have merged with other law firms several times. I am now a partner at DLA Piper, a (relatively) new global law firm formed in 2005 from the merger of three law firms. The firm now has 4200 lawyers in 31 countries and 77 cities. My experience in corporate securities (particularly venture capital) and intellectual property enables me to assist companies structure the financing and intellectual property strategy for developing ane exploiting a new product or service. I and my team work with fifty startups at one time as well as Global Fortune 100. I have been fortunate enough to work with companies in software, cloud computing, semiconductor, health care IT and Web 2.0.

Nokia announced that it will be acquiring Trolltech. This acquisition continues a trend of traditional software companies becoming active in using open source software and business models. For example, Citrix acquired Xensource and Yahoo acquired Zimbra. Consistant with this trend, Nokia provided the following explanation:

“The technology landscape evolves and, for Nokia, software plays a major role in our growth strategy for devices, PCs and the integration with the Internet. We continue to focus on areas where we can differentiate and add more value. Common cross-platform layers on top of our software platforms attract innovation and enable Web 2.0 technologies in the mobile space,” said Kai Oistamo, Executive Vice President, Devices, Nokia. “Trolltech’s deep understanding of open source software and its strong technology assets will enable both Nokia and others to innovate on our device platforms while reducing time-to-market. This acquisition will also further increase the competitiveness of S60 and Series 40.”

http://money.cnn.com/news/newsfeeds/articles/prnewswire/UKM00728012008-1.htm

Traditional software companies understand that open source is a very powerful force in the software industry, a view confirmed by several recent reports on the penetration of open source software. Dennis Byron, the anaylst, summarized these reports very effectively in his post http://www.ebizq.net/topics/open_source/features/8842.html?page=1. He notes that according IDC open source software revenue in 2006 was $1.8 billion (about 1% of all software revenue), but has a growth rate three times the growth rate of traditional software. He also provides a very useful discussion of the difficulty of measuring the growth of open source software.

These reports are consistant with Gartner’s report last year: Gartner declared open-source software “the biggest disruptor the software industry [Gartner] has ever seen and [Gartner] postulated it will eventually result in cheaper software and new business models.” They stated that open-source products accounted for a 13 percent share of the $92.7 billion software market in 2006, but should account for 27 percent of the market in 2011 when revenue is expected to be $169.2 billion, according to Gartner research. http://lawandlifesiliconvalley.blogspot.com/2007/09/open-source-paradigm-shift.html. IDC has estimated that open source revenues will increase to $5.8 billion in 2011, which represents an annual growth rate of 26 percent from 2006 to 2011.

Byron’s conclusion is that open source and closed source models are converging and that over time software users will be more concerned about functionality and price rather than “open source” or proprietary. http://www.ebizq.net/topics/open_source/features/8842.html?page=5. This conclusion is consistent with the results from our 2007 Open Source Think Tank http://thinktank.olliancegroup.com/index.php?option=com_content&task=view&id=34&Itemid=61 (We will be holding our Third Annual Open Source Think Tank next week and you may find out more about this invitation only event athttp://lawandlifesiliconvalley.blogspot.com/2008/01/thinking-forward-on-commercial-open.html)

Open source has entered the mainstream and needs to be part of the strategy of all software companies.

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HP announced the launch of two websites to assist companies in managing open source software:

http://www.fossology.org/: This site provides a tool that HP developed internally to assist in the management of FOSS. The tool was designed to “quickly and accurately describe how a given open source project was licensed.” It is designed to analyze all of the source code for a given project and uses license declarations and “tell tale” phrases to identify which software licenses are being used.

http://www.fossbazaar.org/: This community site provides access to information on FOSS and how to manage it. FOSSBazaar is designed to be a site share information and best practices on managing open source software, with issues ranging from license management to vulnerabilities in FOSS projects. HP has posted significant material on FOSS Governance in the “Getting Started” folder.https://fossbazaar.org/?q=topics/gettingStarted

The site is unique because it provides a single location to discuss information which is currently spread across multiple sites. I think that the site will be very valuable to the FOSS community, but only if they use it. In fact, I have contributed information on intellectual property to the site: https://fossbazaar.org/?q=topics/ipIssues.

The availability of this tool as well as the more familiar Black Duck and Palamida tools mean that the use of FOSS will be receiving increasing levels of scrutiny. We have already seen much greater scrutiny of these issues both at funding for venture capital backed startups and in mergers and acquisitions. In fact, several large companies have established specific, separate due diligence procedures focused solely on open source use. Since more than 95% of venture backed startups exit through acquisition, the management of FOSS use should be a priority for technology startups. Moreover, with the increasing use of litigation by some projects, http://lawandlifesiliconvalley.blogspot.com/2007/12/busybox-files-lawsuit-against-verizon.html the management of FOSS use needs to become a priority for all companies using software (which is essentially all companies)

I recommend that you take the sites for a spin.

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451 Group has recently published a report on why companies would buy an “open source” company. Although I have not read the report, I have been impressed by the quality of their work in the past. Ironically, the report came out on the day of announcement of the Sun acquisition of MySQL. Such acquisitions will be attractive to the open source companies for the same reasons that it was attractive to MySQL: the ability of a large company like Sun to provide the strong service component which is critical for smaller software companies (and particularly open source software companies) to be successful in selling to the enterprise. http://lawandlifesiliconvalley.blogspot.com/2008/01/sun-microsystems-buys-mysql-for-1.html

Matthew Aslett summarizes the report in his posting. http://blogs.the451group.com/opensource/2008/01/18/why-buy-an-open-source-company/. The 451 Group identifies the following drivers for open source M&A:

Entrance into new markets
Portfolio expansion
Consolidation play
Business overhaul
Technology play
Project acquisition
Technology transfer
Carve out

I agree with Martin Schneider that for many traditional software companies “Business Overhaul” is the most compelling reason for an open source acquisition. They need to learn more about the open source business model. However, I think that it is important to place open source acquisitions in the broader context of the consolidation going on generally in the software industry. http://www.networkworld.com/news/2007/111307-hp-ceo-consolidation-openworld.html. The factors driving this general consolidation will also drive open source acquisitions.

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Sun announced today that they are purchasing the open source database vendor, MySQL AB, in a deal valued at around $1 billion. The transaction is scheduled to close late in the third quarter or early in the fourth quarter of Sun’s fiscal 2008. According to The Street: “Sun will pay approximately $800 million in cash for all of MySQL’s stock and assume about $200 million in options.” http://www.thestreet.com/s/sun-to-buy-mysql/newsanalysis/techsoftware/10398964.html?puc=_googlen?cm_ven=GOOGLEN&cm_cat=FREE&cm_ite=NA

Sun’s CEO, Jonathan Schwartz, described the acquisition as based on MySQL’s unique position: MySQL’s database is the “M” in the LAMP stack which is favored by web companies, yet MySQL is having difficulties selling to more traditional companies, because CIOs want traditional “big company” commercial support. MySQL has stated that “more than 100 million copies of MySQL’s open source database software have been downloaded and distributed and an additional 50,000 copies are downloaded daily.” Sun gains the advantage of MySQL’s customer base while supplying the commercial support that MySQL needs to sell into more traditional enterprises. http://blogs.sun.com/jonathan/ Jonathan’s post is particularly interesting for the vision behind the acquistion:

So why is this important for the internet? Until now, no platform vendor has assembled all the core elements of a completely open source operating system for the internet. No company has been able to deliver a comprehensive alternative to the leading proprietary OS. With this acquisition, we will have done just that - positioned Sun at the center of the web, as the definitive provider of high performance platforms for the web economy.

Jonathan’s post also provides details about how Sun will integrate MySQL into its offerings.

And he announced that Sun will be funding additional developments at universities through global research fellowships designed to advance the state of engineering on the internet. The announcement of this academic initiative follows Sun’s announcement in December that Sun will be establishing an “award program” to support innnovation and advance open source development relating to its products. http://lawandlifesiliconvalley.blogspot.com/2007/12/paying-developers-new-way-to-develop.html

2008 is starting with a bang for open source.

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Commercial open source software is at an exciting cross roads. In the last year, its importance has been acknowledged by Gartner which declared open-source software “the biggest disruptor the software industry [Gartner] has ever seen and [Gartner] postulated it will eventually result in cheaper software and new business models.” http://lawandlifesiliconvalley.blogspot.com/2007/09/open-source-paradigm-shift.html. The first revision of the General Public License in 15 years was completed. http://lawandlifesiliconvalley.blogspot.com/2007/07/general-public-license-version-3-legal.html. The cloud over Linux created by SCO’s litigation, almost forgotten, came to a dramatic end in one of the most spectacular melt downs in the history of intellectual property litigation. And many traditional software companies, such as Adobe and Yahoo, have become involved in open source software. http://netscape.com.com/Year-in-review-New-players-enliven-open-source/2009-7344_3-6223153.html

However, success brings new challenges. We will be discussing those challenges again at the Third Annual Open Source Think Tank on February 7 to 9 at the Silverado resort in Napa Valley which is an invitation only gathering for leading global experts to get together and work collaboratively on the issues facing commercial open source. The Think Tank will focus on the continuing evolution of commercial open source companies, customer adoption trends, impact of software-as-a-service, implications of industry consolidation, and legal developments. The keynote speaker will be Chris Anderson of author of the Long Tail and editor in chief of Wired. For a preview of his thoughts, you can read his interview on Matt Asay’s blog: http://blogs.cnet.com/8301-13505_1-9845106-16.html?part=rss&subj=news&tag=2547-1040_3-0-5.

The Open Source Think Tank is unlike a traditional conference; all the attendees who participate are expected to contribute in the brainstorming and workshop format and to take advantage of the CIO panels. If you are interested, you can apply to participate at https://thinktank.olliancegroup.com/

Like last year, we will publish a report of the results of the http://thinktank.olliancegroup.com/

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