Loretta Scudellari

Legal Issues of 21^st Century

February 1, 2010

Open Source Software and Resulting Legal Implications

Introduction: In this era of burgeoning technological innovation, the majority of the population in the developed world, have become a society of “instant communication,” constantly relying upon the Internet, email, the bandwidth of semiconductors, the strength of WiFi as well as the complexity and efficiency of computer programming software. Open source software and cloud computing¹ are current front-runner issues within this digital environment, all driven by the latest gadget graced with a better, faster, stronger lightening-speed Internet connection.

In light of the constant technological innovation and business ventures shaping the concept of global communication and commercialization, laws regulating digital and electronic products, commerce, transactions and enabling software programs, are currently undergoing legislative change. Acts such as the Digital Millennium Copyright Act² with Title 17 amendments such as Section 117,³ represent a legal movement to attempt to balance and maintain the rights of inventors, computer programmers, business entities as well as the everyday consumer who use resulting computer applications (commonly known as “apps”) to search, download and use information and programs (both proprietary and open source) as they “surf” from browser to browser, whether using their desktop, laptop, Blackberry, Kindle, iPhone, or iTablet. There are now anti-circumvention laws⁴ to further protect copyright owners in an era of computer viruses, hackers and peer-to-peer networks (whether legal or illegal).

While much of the information available upon the Internet is public knowledge, just as much of this information, if not more, results from people’s own business, academic, artistic and otherwise creative, pursuits. The physical manifestation of these concepts and ideas result in programs, web-pages and downloadable data that is subject to copyright, trademark and patent law. This particular research summary outline shall focus mainly upon United States copyright law, as computer programming and its resulting implications are covered by Title 17 of the United States Code.

Importance of Open Source Software: The theory and practical application of open source software implicates copyright law as computer programming involves numbers, figures, patterns, manipulations (all formed with minimum amount of creativity/uniqueness exerted by the computer programmer) that are fixed in a “tangible medium.”⁵ The ongoing debate and practical application of proprietary source code and open source code centers upon which type of source code and its overarching philosophy can continue to motivate and encourage technological innovation while keeping the business environment vibrant with competition. (Open source software is not conducive to protecting computer programming trade secrets.) However, many businesses such as IBM, Apple, Microsoft have broken the mold and use/share open source software in addition to using their own proprietary software (i.e. http://www.opensourcemac.org/ is a website listing free, open-source software for Mac OS X, as well a new Open Source iPhone).

“Open source” is a term not originally within Title 17 but has become subject to recent case law, as open source software has become a well-known concept and application in the modern business and communications environment. Open source software brings up issues of contract law as well as recent anti-trust issues (based upon predatory pricing arguments against open source’s anthem of “free,” zero-cost software attainable to anyone who may want or need to use it).

In short, “open source” refers to a collaborative, computer network community that depends upon members’ ongoing, voluntary contributions and improvements upon computer source code. According to the Open Source Software Initiative (OSI), “Open source is a development method for software that harnesses the power of distributed peer review and transparency of process. The promise of open source is better quality, higher reliability, more flexibility, lower cost, and an end to predatory vendor lock-in.” (http://www.opensource.org/). Open source software’s main purpose is to allow any programmer to add to and improve the current open software code…so long as they license the resulting, improved open source software code for free, with no restrictions to any party, for use on any product. The fact that different programmers are adding their own modifications, improvements, changes to already existing source code immediately bring up copyright issues of “derivative works” and “compilations.”⁶

Examples of licenses approved by OSI include a few of the following: Academic Free License 3.0 (AFL 3.0), Adaptive Public License, Apache License, 2.0, Apple Public Source License, Artistic License 2.0, GNU General Public License (GPL), IBM Public License, Microsoft Public License (Ms-PL), Mozilla Public License 1.1 (MPL). There is a specific public review process all licenses and software labeled as “open source,” must undergo in order to get the formal, trusted approval of the OSI. Submissions for license reviews can completed online at the Open Source website. On this website are listed the elements that constitute an “open source” definition, as are described below.

A recent law review article regarding open source software, while highlighting the key legal distinctions between covenants and conditions ⁷(as pertains to licenses and to be discussed further below), also provides a useful, updated primer on how to effectively license open source software, while distinguishing between open source software and proprietary software.⁸ “Despite the differences between Free and Open Source Software (FOSS) and Binary Use Software (BUS), they share one important characteristic: a copyright on the software code, combined with a license of the code, creates the legal framework for the transaction model. As one prominent open source group states: ‘To stay free, software must be copyrighted and licensed.’ FOSS relies on license contracts and so does BUS; they only differ in the particular contract terms used.”⁹

The notable legal distinction between covenants and conditions better supports “business model innovation” while also “contribut[es] to the innovation and healthy competition of software industry.” While BUS uses end-user agreements (EULAs), there are at least 60 approved open source licenses.¹⁰ Whether proprietary or open source, the structure and legal deference given to a proper, good-faith license is imperative to the life and success of computer programming software; especially in regards to the quality and longevity of the open source software, despite the lack of monetary compensation given for its use.

1. In General: Open Source Software

   1. Distribution Terms of Open-Source Software (http://www.opensource.org/docs/osd)

      1. Free Redistribution

         1. Availability: standard/source codes MUST be freely and publicly available

            1. No royalty of fee for such license

            2. All patents essential to implementation of standard: must be covered by promise of non-assertion when practiced by open source software, and be licensed under royalty-free terms

      2. Source Code

         1. Program must include source code

            1. Must allow for distribution of source code in complied form

            2. Deliberately obfuscated source code not allowed

            3. Intermediate forms such as preprocessor or translator not allowed

      3. Derived Works

         1. License must allow modifications and derived works

         2. Must allow them to be distributed under same terms as license of original software

      4. Integrity of Author’s Source Code

         1. No intentional secrets: define a process for fixing flaws

         2. License must explicitly permit distribution of software built from modified source code

      5. No Discrimination Against Persons or Groups

      6. No Discrimination Against Field of Endeavor

      7. Distribution of License

         1. Rights attached to the program must apply to all to whom the program is redistributed without the need for execution of an additional license by those parties

      8. License Must Not be Specific to a Product

      9. License Must Not Restrict Other Software

         1. License must not place restrictions on other software that is distributed along with licensed software

      10. License Must be Technology-Neutral

          1. No provision of the license may be predicated on any individual technology or style of interface

2. General Public License (GPLv3): Identify the Four Freedoms that Every User Should Have

   1. Nobody should be restricted by the software they use. There are four freedoms that every user should have:

      1. The freedom to use the software for any purpose

      2. The freedom to change the software to suit your needs

      3. The freedom to share software with your friends and neighbors, and

      4. The freedom to share the changes you make

         1. Cannot shield/prevent others from using your additions, modifications, changes to the source code

3. Notable Movers and Shakers in the Open Source Environment

   1. RedHat (www.redhat.com)

      1. Latest Red hat open source software: Red Hat Enterprise Linux 5.1 (www.redhat.com/rhel) and JBoss Enterprise (www.redhat.com/jboss)

         1. Used by customers such as Priceline.com, Continental Airlines, And McKesson

   2. Redhat Business Partners: AMD, Intel, Cisco, Dell, Fujitsu, Hitachi, HP, IBM, NEC

   3. Linux (original open source created by Linus Torvalds)

4. In Opposite to Open Source License: End-User License Agreement (EULAs)

While open source software is subject to licenses’ conditions and copyright law, such facts and circumstances often bring up associated issues of shrink-wrap and click-wrap agreements which are regulated by contract law and have lawful restrictions and covenants that customers are bound by. As a related point of interest, these issues are touched upon as they deal with contracts in both an on-line and computer programming-use venue.

A main issue that arises in light of shrink-wrap and click-wrap agreements involve adhesion contracts, which are per se illegal, as one party is not on equal footing to properly negotiate the terms. However, open source licenses cannot be managed by interlocking contracts;¹¹ but the nature and existence of the OSI-approved license itself gives open source software federal copyright protection. In ProCD, Inc. Zeidenberg, 86 F.3d 1447 (7^th Cir. 1996), the court stated that EULAs/shrink-wraps must:

1. Have conspicuous notice on box/container that transaction is subject to license terms

2. Party is required to agree to terms as part of installation of program

3. License terms were ordinary license terms commonly seen in all software programs with no unnecessarily harsh or unusual provisions

5. Legal Transactional Application:

The following information is included for those interested in drafting licenses relating to computer programming.¹²

1. Drafting licenses for Internet use of copyrighted content or computer networks: License grants should include all exclusive rights of reproduction, distribution, public performance, public display

   1. Include language that encompasses: copyrighted content in any media now known or later developed, including, without limitation, reproduction, distribution, transmission, public display and public performance through networks, telephone lines & other methods of communication now known or later developed

2. Intent of drafting parties should be clear in the transactions language

1. Recent Case Law Regarding Open Source Software

   1. Anti-Trust and Open Source Software:

The fact that open source software is available, free of charge, for the users who agree to the license conditions, creates notable concerns for business entities. These businesses expend money, resources and efforts to maintain the proprietary and secrecy of their software, in order to compete in an environment of computer programs whose success is dictated by its speed, ease of use and efficiency; factors and exigencies that are in constant research and development at the further expense of the company. In Wallace v. IBM, 467 F.3d 1104 (2006), the court addressed the following issue: does the provision of copyrighted software under the GNU General Public License (“GPL”) violate federal antitrust laws? The court found that open source software does not raise anti-trust issues, despite the plaintiff’s arguments of predatory pricing. The following sections below contain content from the court’s ruling, both contextualizing the use of the GNU General Public License in light of enforcing the license and the copyright holders’ rights, while laying issues of anti-trust effects to rest.

1. How the License works: “Authors who distribute their works under the GNU General Public License (GPL), devised by the Free Software Foundation, Inc., authorize not only copying but also the creation of derivative works and the license prohibits charging for the derivative work. People may make and distribute derivative works if and only if they come under the same license terms as the original work. Thus, the GPL propagates from user to user and revision to revision; neither the original author, nor any creator of a revised or improved version, may charge for the software or allow any successor to charge. Copyright law, usually is the basis of limiting reproduction in order to collect a fee, ensures that open-source software remains free: any attempt to sell a derivative work will violate the copyright laws, even if the improver has not accepted the GPL.”

2. In Regards to Predatory Pricing Arguments: “Although the GNU General Public License sets a price of zero, agreements to set maximum prices usually assist consumers and, therefore, are evaluated under the Rule of Reason. Intellectual property can be used without being used up; the marginal cost of an additional user is zero (costs of media and paper to one side), so once a piece of intellectual property exists the efficient price of an extra copy is zero, for that is where the price equals marginal cost. Copyright and patent laws give authors a right to charge more so that they can recover their fixed costs (and thus promote innovation), but they do not require authors to charge more. No more does antitrust law require higher prices. As long as open-source projects are able to cover their fixed costs through donations of time, it would reduce efficiency and consumers’ welfare to force the authors to levy a charge on the new user

3. However: “Software that is not maintained and improved eventually becomes obsolete, and the lack of reward may reduce the resources devoted to maintenance and improvement of Linux and other open source projects.

   1. If that occurs, however, then proprietary software will enter or gain market share. People willingly pay for quality software even when they can get free (but imperfect) substitutes.”

   2. Examples include: “Open Office is a free, open-source suite of word processor, spread-sheet and presentation software, but the proprietary Microsoft Office has many more users.

   3. Gimp is a free, open-source image editor, but the proprietary Adobe Photoshop enjoys the lion’s share of the market.

   4. The number of proprietary operating systems is growing, not shrinking, so competition in this market continues quite apart from the fact that the GPL ensures the future availability of Linux and other Unix offshoot.”

While open source software has a notable community and following, the court reasoned that most people are motivated by money and must be compensated for their time and resulting work product that has lasting quality as people are more apt to be precise and detail-oriented if they are paid for their time.. This factor determines that the lion’s share of consumers will naturally gravitate towards and use proprietary software instead of “imperfect” open source software, thus weakening the legal argument that there are anti-trust issues related to open source software.

3. A Quick Primer on Copyright Law

As always, to bring a lawsuit of any kind, one must have legal standing in direct relation to the specific cause of action. The community, collaborative aspect of open source software inevitably brings up issues of who is the rightful owner(s) of the copyright(s)? “Who is the copyright owner” depends on the facts and circumstances of the situation in which the source code is created, produced, derived, etc. For instance, is the computer programmer writing this source code on his own time or as an employee on company time using company resources? Such circumstances bring up issues such as the “work for hire” doctrine and agency law.¹³ More specifically, “[t]o succeed in a copyright action, the copying must be beyond the scope of a license possessed by the defendant, and the source of the copyright’s owner’s complaint must be grounded in a right protected by the Copyright Act, such as unlawful reproduction or distribution.” Storage Tech. Corp. v. Custom Hardware Eng’g &Consulting., 421 F.3d 1307 (2005).

1. 17 U.S.C.S. 101: Definitions:

   1. Copies: “are material objects…which a work is fixed by any method…from which the work can be perceived, reproduced or otherwise communicated” [whether

   2. directly or with machine or device]

   3. Computer program: “a statement or instructions to be used directly or indirectly in a computer in order to bring about a certain result”

2. 17 U.S.C. 106: Copyright owner has the right to:

   1. Reproduce

   2. Prepare derivative works

   3. Distribute copies

   4. To perform

   5. Display publicly

3. Copyright has two prerequisites:

   1. Originality: has to be an original variation resulting from an author’s unique creativity

      1. a programmer adds, changes, modifies source code of open source code in some way

      2. quantum requirement: requisite level of creativity is extremely low, so long as it is new/original/unique

      3. intent: originality requires an intent on the part of the author to create a work of authorship (Nimmer on Copyright)

   2. Fixation: work must be fixed in a tangible medium of expression

4. 17 U.S.C. 501: Elements of Copyright Infringement:

   1. Elements:

      1. P has to prove ownership of valid copyright

         1. This is a debatable issue in the context of open source software and open to interpretation, based upon the specific facts and circumstances. Key issues to consider include whether (1) the plaintiff actually contributed source code and any modifications to the specific open source software, or (2) the plaintiff was merely a user of the open source software in adherence to the conditions of the open source license.

      2. D’s active conduct of copying

      3. Improper appropriation

   2. Easiest Way to take Proactive Measures against Infringement

      1. Registration certificate: 17 U.S.C. 410(c)

      2. Use of copyright notice

      3. Direct or circumstantial evidence

   3. Software Counterfeiting

      1. Software counterfeiting occurs when there is illegal duplication and sale of copyrighted material with the intent of directly imitating the copyrighted product. This can occur in the context of open source software when a person sells the open source software or uses it in a discriminatory manner that violates the OSI’s standard requirements for opens source software.

      2. http://www.bsa.org/country/Anti-Piracy.aspx

   4. End User Piracy

      1. This occurs when a company employee reproduces copies of software without the copyright owner’s authorization. This is an issue for both open source software as well as proprietary software as both have licenses to protect their legal and proper use. In the case of end-user piracy, use as conditioned on a license is violated in one way or the other. Examples include:

         1. Using one licensed copy to install a program on multiple computers;

         2. Copying disks for installation and distribution;

         3. Taking advantage of upgrade offers without having a legal copy of the version to be upgraded;

         4. Acquiring academic or other restricted or non-retail software without a license for commercial use;

         5. Swapping disks in or outside the work place

      2. http://www.bsa.org/country/Anti-Piracy.aspx

1. 17 U.S.C. 117(c): Making Legal Copies of Software for Repair and Maintenance

   1. Storage Tech. Corp. v. Custom Hardware Eng’g & Consulting, Inc., 421 F. 3d 1307 (2005)

      1. Congress purpose is enacting 17 U.S.C. 117(c) is to ensure that independent service organizations do not inadvertently become liable for copyright infringement merely because they have turned on a machine in order to service its hardware components

      2. “repair”: defined as restoring of the machine to the state of working in accordance with its original specifications [17 USCS 117(d)(2)]; fixing a broken machine that is no longer working in accordance with its original specifications

         1. When discrete problem with machine: when there are worn or defective components such as memory chips, circuit boards and hard drives that need to be replaced

      3. “maintenance”: servicing the machine in order to make it work in accordance with its original specifications [17 USCS 117(d)(1)]; checking for the proper functioning of components

      4. New copy must be destroyed immediately in order for 117(c) to apply

1. Software Licensing and Copyright Holder’s Proprietary Rights

Open source software movement of the last few decades embodies a philosophy that seeks to share knowledge and simultaneously promote technological innovation. Professor Michael Madison of the University of Pittsburgh Law School wrote a law review article contemplating the overlapping worlds of open source, proprietary intellectual property rights and the law, recognizing that a “metaphorical ‘balance’” must be achieved. This balance is necessary in order to share, yet protect knowledge within the world of business where IPRs are the currency of exchange, but subject to changing legal regulation.¹⁴ Madison further highlights pertinent questions present in the open source software environment:

[w]hat is the relationship between the knowledge community that is an open source computer software development project, and the knowledge artifacts that are the program itself (a dynamic, evolving thing) and the instrument that is the open source software license (typically, a fixed, static thing)? What is the relationship between that combined enterprise and a similarly constructed but individually controlled and managed enterprise that produces and supports a conventional proprietary, closed-source computer program that competes with the open source version? How does that proprietary program construct differ from the open source construct? Does it matter if the open source version is based on the proprietary version, or the reverse, in some technological sense, or if some individual programmers have somehow participated in both?¹⁵

These questions must be kept in mind by intellectual property (IP) litigation and transactional attorneys alike, as they deal both proprietary and open source technology. “Generally, a copyright owners who grants a nonexclusive license to use his copyrighted material waives his right to sue the licensee for copyright infringement,” and can only sue for breach of contract. (Sun Microsystems, Inc., v. Microsoft Corp., 188 F.3d 1115, 1121 (9^th Cir. 1999); Graham v. James, 144 F.3d 229, 236 (2d Cir. 1998). If, however, “a license is limited in scope and the licensee acts outside the scope, the licensor can bring an action for copyright infringement.” See S.O.S., Inc. v. PayDay, Inc. 886 F2d 1081, 1087 (9^th Cir. 1989); Nimmer on Copyrights, §1015[A] (1999).

In regards to licenses in the context of open source software, it is crucial that attorneys draft license language suggesting the presence of a condition (versus a covenant present in a contract). While a copyright holder retains exclusive rights to modification and distribution of copyrighted material and related license, the conditional nature of license is necessary to further open source collaborative structure and goals.

Also to be considered is whether the parties’ intent has been satisfactorily amplified within the license’s drafting language, and is then given influential weight when assessing whether the commercial transaction is a sale or a license (whether within the future context of the subsequent parties’ conduct or litigation). “In the licensing context, at times, as in Jacobsen,¹⁶ the distinction between interpreting the legal form as a property right or as a contract is significant, primarily because the different characterizations lead to different remedial outcomes.”¹⁷

In Jacobsen v. Katzer, the issue was whether terms of publicly available Artistic License offered for copyright liability or supported possible claims for breach of contract, as this would dictate what remedies (state contract remedies vs. federal copyright remedies) were awarded. “At times, the two remedies are cumulative rather than alternative. The doctrine of preemption in federal law embodies the idea the federal intellectual property rights take precedent over contract and related state law rights in the event they overlap.”¹⁸ In copyright law, a plaintiff can get a preliminary injunction to halt the alleged copyright infringement resulting from violating a copyright license. Elements for preliminary injunction as listed in Winter v. Natural Resources Defense Council, 29 S. Ct. 365, 374, 172 L. Ed. 2d 249 (2008)) include the following:

1. Likelihood of success on merits (cannot be speculative)

2. Likely to suffer irreparable harm in absence of preliminary relief

3. Balance of equities in his favor, AND

4. Injunction is in public interest

   1. NOTE: Court must consider public consequences of injunction. This is a key point in context of open source licenses as the concept rest upon the idea of sharing knowledge with all parties, discriminating against no person, product or technology.

Whereas in the case of breach of a contract, a plaintiff can only get monetary relief. Below, is the 2-part test cited in Jacobsen v. Katzer used to determine preemption of federal copyright claims over state contract claims.

1. 2-Part Test for Preemption of Copyright over State Contract Claims

   1. Claims must come within subject matter of copyright

   2. Rights granted under state law must be equivalent to any exclusive rights under general scope of copyright

      1. “equivalent rights”: state cause of action must protect rights qualitatively different from copyrights (Harper & Row, Publishers, Inc. v. Nation Enterprises, 501 F. Supp 848, 852 (S.D.N.Y. 1980))

      2. “extra element”: is the element that changes the nature of the action (Mayer v. Josiah Wedgwood & Sons, Ltd., 601 F. Supp. 1523, 1535 (S.D.N.Y. 1985))

As for the Jacobsen court’s holding on open source licenses, the court found that copyright holders who engage in open source licensing have the right to control the modification and distribution of copyrighted material as well as the licensing material. The court elaborated a little more on aspects of open source licenses that positively serve the OSI movement, as well as the public at large. The attribution and modification transparency requirements of open source software licenses directly serve to:

1. Drive traffic to the open source incubation page and

2. To inform downstream users of the project, and

3. Visibility of downstream users allow the copyright holder to learn about the uses of his software and gain others’ knowledge for advance software release

Jacobsen v. Katzer has presented, what Madison would perhaps term, a “balanced” ruling, embodying both policy and law to enforce the realistic needs of open source software licenses, acknowledging that these licenses must be enforced in a certain way because doing so enhances the future success and impact of the open source project. It also shows the courts are becoming more cognizant of the lightening pace technological innovation is occurring at, as well as the flexibility that must implemented within the structure and application of legal statutes.