Beware Copyleft Licenses in Source Code

For most software companies, their most valuable asset is the source code underlying their software. When a potential buyer conducts due diligence, that potential buyer (or a third party) is going to scrutinize the seller’s source code. Buyers do not want to purchase liability exposure, and buyers also want to make sure they can protect and monetize the intellectual property they are purchasing. There are many horror stories of buyers walking away from potential seven- or eight-figure acquisitions over this exact issue, and licenses associated with open-source code are a major consideration in buyers’ minds.

 

In general terms, there are two types of open source licenses: permissive and copyleft. Permissive licenses place very few requirements on how the code can be redistributed. Common permissive licenses include the MIT, BSD, and Apache licenses. These are the open-source licenses software companies should use since they place few limitations on protecting and monetizing the created source code. Copyleft licenses, on the contrary, generally require that all source code into which the copyleft code is inserted must be made open source to be compliant with the license. The GPL in its various iterations is the most common copyleft open source license. Since the code must be released open-source, monetization will prove difficult.

 

To avert a copyleft disaster, there are some best practices a company should employ when developing software. You should create and maintain an inventory of the open source code used. There are off-the-shelf solutions that perform this function. With that inventory assembled, you need to identify the open source licenses you have incorporated into your code and ensure you are compliant with those licenses. If you find a problematic open-source license, you may need to code around it in order to protect the value of your company and its software.

 

If you need to establish systems to ensure that your use of open source code does not cause major problems with potential buyers, contact us at info@barlowwilliams.law and we'll be happy to meet with you to discuss how we can help you achieve your business goals.