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.

Microsoft Corporation has recently sued TomTom for patent infringement for its device which includes Linux. Although a number of stories have assumed that the suit is the first salvo in the long awaited patent assualt on Linux by Microsoft, I think that these concerns are premature. First, the suit is part of a longstanding controversy between the two parties and filing this type of suit is a common method of encouraging the other side to come to the bargaining table. Second, a brief review of many of the patents indicate that they are focused on GPS and other claims unrelated to Linux. Third, the claims relating to Linux, such as the FAT, are based on features common to many operating systems and are likely to be subject to challenge under the new higher standards for patents set by the Supreme Court.  They are unlikely to be Microsoft’s strongest patents reading on Linux.

I think that Jim Zemlin of the Linux Foundation got it right: calm down, but be alert http://www.linux-foundation.org/weblogs/jzemlin/2009/02/26/note-on-microsoft-tomtom-suit-calm-down-hope-for-the-best-plan-for-the-worst/. I may have more to tell tomorrow when we will hear from Sam Ramji at the Open Source Think Tank.

I am attending the panel in our Silicon Valley office on the PricewaterhouseCoopers “Shaking the MoneyTree” report on the state of the venture capital industry. The detailed results are available online at www.pwcmoneytree.com, www.nvca.org and www.venturexpert.com. However, the report reflects several important trends:

1.  Silicon Valley continues to dominate the industry with 36% of Q4 deals and 39% for the entire year.

2.  Despite a downturn in the amount of venture capital investments, it remains significant and is very similar to 1996/1997.

3. Q4 reflects a downturn in the number of deals and amount invested, but it is not clear if this decrease is a blip or a trend.

4.  For Q4, software continues to be the largest sector with life science a close second.  Cleantech is third for Q4, but is second for the year as a whole. The growth of cleantech is very interesting since the category did not exist four years ago.  In Q4, venture capitalists invested in $5.4 Billion in 818 deals.

5.  The lack of IPOs and fewer large M&A deals means that venture capitalists are investing in more later stage deals to keep companies alive for an exit.

The panelists were a mix of venture capitalists, investment bankers and commercial bankers.  Although the panel acknowledged that the economy is grim,  venture capitalists are continuing to invest.  Mike Selfridge from Silicon Valley Bank, which serves more than 60% of venture backed startups, stated that over half of their companies are predicting lower sales for 2009.  However Silicon Valley Bank is continuing to lend to its customers. Many of the panelists stated that the venture capital industry is ”broken” and  likely to shrink over time with estimates ranging from a decrease from 50% to 80%.

According to PWC, they predict that VCs will be reviewing their portfolio companies carefully and will stop funding many portfolio companies.  The industry will see many downrounds (I am working on three downrounds which are styled as ”-” rounds, i.e Series A-1 so “hyphen” rounds appear to be a new trend).  New deals will be harder with the quality of the team being critical.  For enterpeneurs,  PWC noted that they need to recognize that if the contraction of the industry occurs as predicted, many venture funds (and venture capitalists) may not be present for a second round and the entrepeneurs need to consider this issue in choosing investors.  Finally, PWC believes that venture fund raising will continue to be difficult and capital calls may be rejected by the limited partners who do not have the liquidity to meet them.

The venture industry clearly is undergoing many fundamental changes and the direction is still unclear, but innovation has become even more important to the economy and the venture capital backed companies remain a major source of innovation.

One of the hidden intricacies of open source software are the exceptions applying to the GCC compiler.  The GCC compiler is is widely used both in Linux and other products. On January 27, 2009, FSF announced a new set of exceptions which will apply to the GCC compiler as licensed under the GPLv3.  The FSF also intends by revising these exceptions to permit the creation of a plugin architecture for the GCC compiler which would be consistent with the GPLv3 and would not permit the use of plugins which are proprietary. This new exception can be found at http://www.fsf.org/news/2009-01-gcc-exception/ and the relevant FAQ at http://www.gnu.org/licenses/gcc-exception-faq.html.  These new exceptions appear to be more limited than the prior exceptions if proprietary plugins are developed for GCC. Given the wide use of the GCC compiler, these new exceptions need to be reviewed by companies that will be using new versions of the GCC compiler to ensure that they do not create unanticipated obligations. Companies should add this review to their their Open Source Use Policy to avoid having the GPLv3 apply to their software compiled using new versions of GCC. 

The GCC compiler is an important part of the Linux toolchain, but is used in a wide variety of software. Until recently, the FSF has licensed GCC compiler under the GPLv2 (version 4.2.2 was the first GCC version released under GPv3), but is now licensed under GPLv3. However, GCC works by including parts of the GCC program in a compiled program, the use of GPLv2 might require that all programs compiled by the GCC would need to be distributed under the GPLv2. Since many software developers would be reluctant to use the GCC compiler if their programs needed to licensed under GPLv2, the FSF provided an exception that expressly permit code compiled with the GCC compiler to be distributed under any license. This exception changed over time, but one example of the exception is below:

As a special exception, if you link this file with files compiled with a GNU compiler to produce an executable, this does not cause the resulting executable to be covered by the GNU General Public License. This exception does not however invalidate any other reasons why the executable file might be covered by the GNU General Public License. 

The exceptions are quite technical and it remains an open question whether they achieve all of the goals of the FSF. One potentially troubling issue is the very broad definition of “Independent Module” as the term which defines the line between code that might be subject to the GPL’s enforced sharing obligation and code that is beyond the GPLv3’s reach.  The focus on Independent Modules appears to be a  move away from reliance on “derivative work,” which is the copyright  term commonly used in the GPLv2 (and used for analysis in GPLv3) to establish that boundary.  While open source lawyers have always struggled with the lack of specificity in the derivative work analysis (derivative work is a statutory term under US copyright law http://www.copyright.gov/title17/92chap1.html#101, but has been interpreted differently for software in different Courts of Appeal in the United States), extending the obligations of GPLv3 to include any component that “makes use of an interface” would appear to capture within the GPLv3’s reach many works which may not be a derivative work under copyright law. It also represents a shift from FSF’s traditional reliance on copyright to the use of “contract” terms.

This shift is fundamental because the meaning of copyright terms may vary over time depending on changes in the law and court decisions. For example, in the United States, the Court of Appeals have adopted different definitions for “derivative work” and, thus, the interpretation of the ”derivative work” in GPLv2 will vary depending on where the lawsuit is brought. This issue is further complicated because copyright law is national and the approach to this concept in foreign copyright law may also vary. The shift to contract terms which are not linked to copyright potentially provides greater certainty about the interpretation of the exception. As noted above, companies who use the GCC compiler should carefully review this new exception to ensure that it is consistant with their business strategy and add this issue as a review for their Open Source Use Policy.  

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