Notice

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.

As I mentioned in my post on Jacobsen v. Katzer http://lawandlifesiliconvalley.blogspot.com/2007/08/new-open-source-legal-decision-jacobsen.html, the issue of remedies for the breach of open source licenses is a difficult one. A recent decision in the Northern District of California, Netbula, LLC v. Storage Technology Corporation (”STC”), is a reminder of these difficulties. Netbula tried to convince the court that STC’s alleged violation of the license agreement should be copyright infringement as well as breach of contract. As I noted in that post, most licensors prefer copyright infringement remedies:

Generally, the remedy for contract violations under US law is damages, not “injunctive relief” (which means that the court order a party to cease their violation). On the other hand, copyright infringement generally includes a presumption that injunctive relief is appropriate. Thus, the question of whether the violation of a license is a contract violiation or copyright infringement (it can be both) is very important, because licensors would prefer to obtain an injunction prohibiting the breach of the license. The question turns on a nuanced legal issue of whether the term in the license is a “restriction on the scope” of the license or a covenant. In the first case, the failure to comply with the provision means that the licensee is outside the scope of the license and thus is a copyright infringer (as well as liable for breach of the contract). On the other hand, if the term is merely a covenant, then the failure to comply with it is a breach of contract. The most celebrated case dealing with this issue involved the Java license between Sun and Microsoft in which the court found that the obligation on Microsoft to meet the Java compatability tests was a covenant, not a restriction on the scope of the license and the court denied Sun an injunction on those grounds (Sun got an injunction for unfair competition).

The Netbula decision demonstrates the difficulty of proving that a license obligation is a “condition”. Briefly, STC licensed Netbula’s SDK for development and runtime version for distribution. Netbula alleges that STC used the SDK for more users than was permitted and on operating systems that were not permitted. The license grant is as follows: ” a non-exclusive, perpetual, irrevocable license for Storagetek’s employees, consultants and subsidiaries for up to ONE user(s) for each of the licenses purchased, to use the PowerRPC SDK Product under Windows NT and 95/98 platforms; each user can only use the software on one computer.” The court found that the limitation on users was not a condition, but only a covenant. Consequently, the remedies for breach of the license would be damages and the breach was not copyright infringement. On the other hand, the court found that the restriction on the use of the SDK for certain operating sytems was a condition and its breach would be copyright infringement. However, Netbula did not prove that STC had used the SDK on the non permitted operating system.

Netbula also alleges that STC did not pay the royalties for all of the copies which it distributed. The license provided for payment of a fixed amount for 1000 copies. The court found that this obligation is covenant, not a condition.

This case demonstrates the difficulties in making these distinctions. The case demonstrates the reluctance of the courts to find a “limitation” on the license and provide a licensor with copyright infringement remedies. This case is important for open source licensors: even though the Jacobsen case was probably wrongly decided, this issue is a difficult one. The appeal of the Jacobsen case has the potential for disaster for open source licensors: if the CAFC decides the issue incorrectly and uses sweeping language (as opposed to narrowly focusing on the provisions of the Artistic License), open source licensors will be in a considerably weaker position in pursuing licensees who are in breach.

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The Wall Street Journal reported today that the SCO Group Inc. (”SCO”) raised $100M to go private and exit bankruptcy. The funding came from the private equity firm Stephen Norris Capital Partners and partners in the Middle East. The Journal reports that Stephen Norris Capital Partners and their partners will have a controlling interest in SCO. http://online.wsj.com/article/SB120301098306668879.html?mod=rss_whats_news_technology

The announcement is puzzling because SCO’s principal assets were its UNIX rights (the scope of which are unclear). Yet, a court decision in August rejected all of SCO’s claims to enforce copyrights in Linux that it claimed to own. The court rejected both SCO’s contract claims for breach of the UNIX license agreements against existing UNIX licensees, such as IBM, and for copyright infringement of UNIX copyright by users of Linux (the court found that Novell owned the copyright in UNIX software and had not assigned it to SCO. In my 25 years of practice, the SCO decision was one of three most dramatic failures of an intellectual property strategy. The decision also made clear that SCO knew about these problems when they launched their litigation against IBM because they tried to get Novell to confirm the transfer of the copyrights. Apparently, we have not heard the end of this story.

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This morning we are discussing legal issues at the Open Source Think Tank (for more information, please see http://thinktank.olliancegroup.com/). I started by providing an overview of legal developments from 2007 based on my earlier post. http://lawandlifesiliconvalley.blogspot.com/2007/12/2007-top-ten-free-and-open-source-legal.html. I will summarize my predictions for 2008 in posting later this weekend.

We also had a “Brain Storming” session on the topic of “What are the three major licenses for commercial adoption?” The discussion groups noted that the use of licenses depends on the community, the business strategy and status of the project. For projects that are just launching and want to ensure that all of the developments are contributed back to the community, the GPLv2 is frequently the best choice since many projects use it and it is a clear signal that you intend to be live by the rules of the open source community. However, a project that is more mature could choose GPLv3 which resolves many of the ambiguities of GPLv2, but it is new and not completely understood. A company that is interested in widespread adoption and is not concerned about ensuring that contributions are returned to the community would choose either BSD or Apache. One group noted that Apache License is particularly attractive because of Apache’s strong reputation for excellent code. One surprising statement was that the GPLv2 continues to be a problem for some companies: the representative of a major company recently released a project under a dual distribution model, the company was told by their “commercial” licensees that they would drop the software if the GPLv2 was chosen as the “open source” license in the dual distribution. This statement was particularly surprising since these licensees would receive the software under the commercial license.

We all agreed that legal issues will continue to be important for the industry and we are likely to continue see important legal developments this year.

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After tasting some great wine (I recommend Pine Ridge Stags Leap 2005 Cabernet Sauvignon and the tour at Pine Ridge was very interesting even for those who have taken many wine tours http://www.pineridgewinery.com/index.cfm?fuseaction=category_detail&category_id_int=12541), we had the keynote from Chris Anderson, Editor in Chief of Wired magazine and author of The Long Tail.http://www.thelongtail.com/

Chris discussed how the concepts of the Long Tail applied to open source. He noted that the lower cost of development, lower cost of distribution and the lower cost of search which are characteristic of open source software fit the Long Tail model. He summarized the opportunity with a quote from Joe Kraus (founder of JotSpot): “Millions of markets of dozens.”

Chris then predicted that the next wave of open source software will involve open source hardware. He has been working on these issues as part of his DIY Drones project. He noted some of the problems in applying open source concepts from bits to atoms. He identified that each of the six layers of open source hardware pose separate problems: mechanical drawing, parts list, schematics, PCB layouts, firmware and software. The problems range from rights owned by third parties to the protectability of items such as a parts list. His project is currently using Creative Commons license but he is not sure if it meets all of his needs.

We are able to continue the discussion at the dinner at Silverado Country Club where we capitalized on the wine tours by sharing bottles from different wineries.

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We are in Napa at the Open Source Think Tank (for more information, please see http://thinktank.olliancegroup.com/) and we have had two very interesting panels with CIOs telling us about their adoption and management of open source. They had a very consistent message: open source is everywhere and growing. But open source companies need to act more like traditional software companies: they need to have better support services and more professional sales. They also made clear that the future is “mixed” environment with a combination of third party proprietary software, third party open source software and internally developed software. These statements are consistant with Gartner’s recent prediction that 80% of proprietary software will include open source software by 2012. http://blogs.cnet.com/8301-13505_1-9863802-16.html. In the words of Gartner: By 2012, 80 percent of all commercial software will include elements of open-source technology. Many open-source technologies are mature, stable and well supported. They provide significant opportunities for vendors and users to lower their total cost of ownership and increase returns on investment. Open source companies need to be prepared to work in the mixed environment and to find ways for the end user to get support that they need for the entire stack.

In discussing the advantages of open source adoption, they went beyond the traditional focus on price to note that open source adoption also helps build community within the organization and saves time. They also provided some advice for selling to large enterprises: focus on the “use case”. As the representative of a major bank noted “Chaos breaks out after the third power point slide” so make sure that your use case appears on slide two. More to come.

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