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.

The Open Source Summit in Hong Kong last week demonstrates the power of the open source methodology and the OpenStack community. The Summit was the first OpenStack Foundation conference outside of the United States and attracted over 3,000 attendees from over 50 countries (significantly more than the Summit in Portland). OpenStack has grown dramatically with over 12,000 individual members in over 130 countries. The software has been deployed in over 200 cities. keynotes were great, but Danny Sabbah, IBM CTO and General Manager for Next Generation Platform, was particularly fascinating: he described the shift in computing as the most massive transformation of the industry that he has seen in his career which started in 1974. The cloud has the power to change both how we compute and what we compute. This change will transform the Internet into a “compute engine”. As context, he noted the following trends: the size of the “digital universe” will increase by 50 times between 2010 and 2020, with over 40 zettabytes of data; the number of smart phones will increase by over 20 times to 10 billion by 2016 and the active users of Facebook will increase by 10 times to over 1 billion by 2013. OpenStack, with its open architecture and collaborative development methodology, can play a central role in this transformation.

The Thanksgiving holiday has given me the opportunity to consider the critical new role of collaboration in innovation. This role was emphasized to me during a single day, November 17, in Silicon Valley. In the morning, I attended the Cloud Computer Expo and speaker after speaker, from Cisco to HP, discussed how OpenStack software was critical to their success in cloud computing and was transforming cloud computing industry. OpenStack software to enable cloud computing is being developed under the management of the OpenStack Foundation in a collaboration of over 150 companies. The OpenStack project was started by NASA and Rackspace, but was recently reorganized as a foundation to take over the funding and management of the project (as a matter of transparency, I represent the OpenStack Foundation). I think that such collaborations will be increasingly critical for the future because many business problems are too complicated to be effectively solved by a single company. For example, the auto industry has joined with the consumer electronics industry to form a collaboration for entertainment systems in automobiles, the Genivi Alliance

At the end of the day, I attended the Sierrra Ventures CIO Summit cocktail party (yet another good reason to have Sierra Ventures as an investor) and Jed York of the 49ers was discussing the role of technology in the new Santa Clara stadium (it sounds like it will be spectacular). Yet he also focused on the need to encourage collaboration with the Silicon Valley community to take advantage of the possibilities presented by the technology infrastructure of the new stadium.

From cloud computing to sports, collaboration has become central to business success in the 21st century.

The recent announcement about the “Openstack” product from Rackspace emphasizes the increasing importance of the cloud to the open source industry.

For the last year, I have seen an increasing number of open source issues relating to cloud computing (for a general review of cloud contracts, see my presentation as part of a panel for PLI Many of these legal issues are new; it reminds me of the legal situation in 2004 when many fundamental legal issues in open source licenses, such as the scope of the GPL and the remedies for breach of an open source license, were unsettled.  The use of open source software in the cloud raises new and difficult legal issues such as when is use in the cloud a “distribution” (which triggers obligations to make source code available in the GPL family of licenses) and what is an “aggregate” in the cloud. We had a very lively discussion about these issues at the Stanford Law School E-Commerce conference (most of these questions deal with the GPL family of licenses so the use of the Apache license by OpenStack project will avoid some of these questions). 

The obligation to provide source code under GPLv2 is based on the “distribution” of object code of the GPL Licensed Code.  The term distribution does not have a simple or obvious meaning; “distribution is defined in Section 106(3) of the Copyright Act of 1976 (“1976 Act”) as the right “to distribute copies or phonorecords of the copyrighted work to the public by sale or other transfer of ownership, or by rental, lease, or lending.” The term “public” is not separately defined in the 1976 Act but is defined by reference to “publication”.  Publication is defined as follows:  “Publication is the distribution of copies or phonorecords of a work to the public by sale or other transfer of ownership, or by rental, lease, or lending.  The offering to distribute copies or phonorecords to a group of persons for purposes of further distribution, public performance, or public display, constitutes publication.  A public performance or display of a work does not of itself constitute publication.”  Publication is a complicated concept which derives from the Copyright Act of 1909 (“1909 Act”).  Under the 1909 Act, publication without copyright notice had very significant legal consequences: it could result in the loss of all rights under the 1909 Act, placing the work in the public domain.   

Ironically, cloud computing requires us to reach back to the “limited publication” doctrine from the 1909 Act to find legal guidance for how to interpret the scope of the distribution right.  The doctrine of limited publication was created by the courts under the 1909 Act in order to avoid the forfeiture of rights under the 1909 Act through inadvertent transfer of a copy of the work without the required copyright notice.  White v. Kimmel is the seminal case for the doctrine and defines a “limited distribution” as a distribution that “communicates the contents of a [manuscript] to a definitely selected group and for a limited purpose without the right of diffusion, distribution or sale.”  White v. Kimmel, 193 F.2d 744, 746 (9th Cir. 1952).  The doctrine of limited publication continues to be viable under the 1976 Act, but it has become much less important because the use of copyright notice is now optional and the failure to include it no longer puts the work into the public domain.  The House Report of the 1976 Act defines distribution to the public as “it refers to persons under no explicit or implicit restriction with respect to disclosure of its contents.”  Cloud computing may bring new life to the “limited publication” doctrine and open source lawyers may be reading a lot of 1909 Act cases (get ready, there are more than 50 of them that are relevant and thanks to our summer associate Eduardo Blanco from Northwestern University School of Law that helped me sort through them).

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 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.

The growth in the US was roughly the same as the global average at 12%.  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.