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.

In a recent post, I described at a very general level the patent litigation settlement agreement between Red Hat and Firestar and that the settlement was unusual for its protection of the Red Hat open source ecosystem, not just its own products. http://lawandlifesiliconvalley.blogspot.com/2008/06/red-hat-settlement-and-linux-ecosystem.html.

I am pleased to note that Red Hat has recently published the text of the settlement which I believe will serve as a model for future settlements (in the interests of transparency, my firm does a modest amount of work for Red Hat, but we were not involved in the litigation or drafting the settlement agreement). The settlement is sufficiently important that I am going to write several posts about it and describe it in some detail (non lawyers be warned!).http://www.redhat.com/f/pdf/blog/patent_settlement_agreement.pdf.

I strongly recommend that lawyers who work with open source companies should review the entire settlement agreement because it is a great guide to the special issues arising in settling lawsuits involving open source products. Rob Tiller who was in charge of the settlement provides a “Reader’s Guide to the Firestar Settlement” in the Red Hat blog. http://www.press.redhat.com/2008/07/15/a-readers-guide-to-the-firestar-settlement/

The scope of the settlement agreement is particularly important because of the complexity of many open source products (including Red Hat’s products): they include software from a wide variety of sources and the software, in turn, may be modified by any of the licensees. And the settlement must take into account “upstream licensors” of products used in the Red Hat products to avoid an end run by the patent owner. And the scope of the patent license must be carefully drawn to avoid “free riding” because much of this third party software is distributed in third party products which are not Red Hat products. Red Hat does not want to cover uses of third party products when they are not linked to Red Hat products. This complexity undoubtedly created tension in the settlement negotiations because patent owners want to describe the scope of the settlement as narrowly as possible. Red Hat solved this problem by defining the scope of the settlement as including “Red Hat Licensed Products” which includes “Red Hat Products”(which covers more than simply products distributed under the Red Hat brand), “Red Hat Derivative Products” and “Red Hat Combination Products”. The relevant definitions are set forth below:

“Red Hat Product” means (a) any product, process, service, or code developed by, licensed by, authored by, distributed under a Red Hat Brand by, made by, sold under a Red Hat Brand by, offered for sale under a Red Hat Brand by, sponsored by, or maintained by Red Hat, (b) any predecessor version of any of the foregoing, including without limitation any upstream predecessor version of any of the foregoing, (c) an identical copy of the foregoing or (d) a combination of the foregoing.

“Red Hat Derivative Product” means any product, process, service, or code that is a direct or indirect Derivative of at least one Red Hat Product. “Red Hat Derivative Product” does not include any Red Hat Product. An indirect Derivative of a Red Hat Product includes, for example, a derivative work based on a derivative work of the Red Hat Product.

“Derivative” means any derivative work or any other product, process, service, or code that is based on another product, process, service, or code.”

“Red Hat Combination Product” means any product, process, service, or code that is a combination of (a) at least one Red Hat Product or Red Hat Derivative Product and (b) at least one product, process, service or code portion that is neither a Red Hat Product nor a Red Hat Derivative Product. A “Red Hat Combination Product” does not include any Red Hat Product or Red Hat Derivative Product. A combination includes, without limitation, two products distributed together, two products that interact or that interoperate, and two products that call each other.

Red Hat must then define to whom the license applies so they have a definition of Red Hat Community Member:

“Red Hat Community Member” means any Entity that is a licensee or licensor of, contributes to, develops, authors, provides, distributes, receives, makes, uses, sells, offers for sale, or imports, in whole or in part, directly or indirectly, any Red Hat Licensed Product, including without limitation any upstream contributor to, or downstream user or distributor of, a Red Hat Licensed Product. An upstream contributor includes, for example, an Entity that contributes to a software product, so long as a copy or derivative work of that software product is distributed or used by Red Hat. For example, an Entity would be an upstream contributor if it contributes to a version of Open Office if that version or a derivative work of that version is distributed by Red Hat as part of Red Hat Enterprise Linux. A downstream distributor includes, for example, an Entity that distributes a copy of a Red Hat software product received from Red Hat or another Entity or that distributes a derivative work of such software product. For example, an Entity would be a downstream distributor if the Entity received a derivative work of Hibernate Tools from either Red Hat or another Entity and then distributed a copy of the derivative work.

“Entity” means an individual, company, trust, corporation, partnership, sole proprietorship, joint venture, limited liability company, association, unincorporated organization, university, college, or other legal, governmental, or other entity.

The Settlement Agreement in Section 5.1 grants Red Hat a perpetual, irrevocable license under the subject patents for any and all purposes and to engage in any and all activities without restriction.

The license to the Red Hat Community Members in Section 5.2 is more limited (it applies only to Red Hat Licensed Products), but very broad: a perpetual, irrevocable license under the subject patents to engage in any and all activities related to the Red Hat Licensed Products. They further define it to include, without limitation, to include make, have made, use, have used, sell, have sold, offer for sale, have offered for sale, provide or have provided, distribute or have distributed, import or have imported any Red Hat Licensed Product or services related to any Red Hat Licensed Product. Neither the grant in Section 5. 1 nor 5.2 permits the right to sublicense (just a reminder that the GPL, under which much of Red Hat’s products are distributed, also does not permit sublicensing).

However, Section 5.3 provides the Red Hat and Red Hat Community Members the right to grant sublicenses to the patents to the same extent of the license for Red Hat Community Members in Section 5.2.

These license grants are limited in Section 5.4 with respect to certain Red Hat Derivative Works or Red Hat Combination Products: they do not apply to situations in which the infringement by the Red Hat Combination Product or the Red Hat Derivative Product are not caused by the use or reference to the underlying Red Hat Product. These limitation was probably very important for the patent owner to avoid the license being used “to launder” third party software by combining it with Red Hat Software.

The Settlement Agreement provides very broad protection for the Red Hat Community and reflects the issues which a company settling patent litigation must address.

The Settlement Agreement also includes covenants not to sue which will be the subject of another post.

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EWeek had an interesting interview with Steve Ballmer that covered Microsoft’s view of open source along with other topics after the Microsoft Worldwide Partner Conference. http://www.eweek.com/c/a/Enterprise-Apps/Microsofts-Ballmer-Opens-Up-to-Partners/?sp=0&kc=EWKNLLIN071508STR3. Although Ballmer denies that Microsoft will be “open sourcing” any of its core products, he emphasizes that Microsoft wants to encourage opens source development on its platform (see below):

However Microsoft will support and interoperate with open-source software in various ways, Ballmer said. “Will we interoperate with products that come from like Linux, from the open-source world? Yes, we will,” he said. “Will we encourage people who want to do open-source development to do it on top of Windows? Yes, we’re proud that the best PHP system in the world is actually the one that runs on Windows today, not the one that runs on Linux.

“So we’re going to encourage open-source innovation on our platforms, and around our platforms. And, you know, we see interesting things where bits and pieces of technology, commercial companies are now starting to provide it in an open-source form or to digest in an open-source form. And we’re open to that as well. But our fundamental business model will remain kind of commercial software, advertising, enterprise licensing, etc.”

As this interview indicates, Microsoft is continuing to move towards engagement rather than confrontation with the open source community. However, remember that Microsoft is a big organization with a very strong culture to which these changes are very difficult. This change will take time and we should expect relapses in their engagement with the open source community. And this change should not be mistaken for adoption of the open source philosophy, rather it is a recognition of reality. Microsoft recognized that the world has changed and they need to deal with the world as it is, not as they wish it to be.

This change does provide an opportunity for open source companies.

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