Navigating Open Source Software Ownership, Licensing and Commercialization

What is “Open Source” Software?

Open Source Software is a term that describes a growing trend in the development process of software. Generally, the creator of software owns the copyright to that software. In a growing number of cases, software creators are recognizing that the development and improvement of their software can be accelerated by allowing a community of users to use the software for their projects, build on them and contribute new features towards them. In exchange, the creator generally requests that contributors allow the rest of the community to further build upon their improvements. This arrangement is referred to as “open-sourcing” software. “Open Source” is a catch-all term that applies to software in which the source code is accessible and widely distributed.

Who Owns It?

Typically, for open-source projects, the creator owns the software but provides a license to other “contributors” to reproduce, modify and redistribute the software. The licenses offered to contributors and users of the software are often standardized (see MIT, GNU LPGL, and Apache as examples). Typically, under the license, contributors must also make their modifications of the software (or updates, alternate builds or derivative works) available as open-source themselves. For example, popular open-source search tool Elasticsearch can be modified by contributors, with licenses available to the community to use the modifications made by the contributors, but the creator of the original Elasticsearch software and the contributors all retain copyrights to the parts of software that they created.

Both the creator and the contributors to open-source software may assign their copyright to a single person or legal entity, often an open-source foundation. This can have several benefits. Firstly, it makes enforcing the copyright simpler because with only one copyright holder there are fewer parties involved in any dispute. When several persons have different copyrights over different features of the same software, it can be difficult to determine how to comply with all of the licenses granted if varying licenses govern a piece of code. Assigning copyrights to a single entity can also minimize the likelihood of contributors deciding to change the license they grant for their contribution to the software after a subsequent contributor relied on a previous license. This can be a source of legal uncertainty for future contributors who were not informed of the change.

Organizations such as the Open Source Initiative (OSI) act as watchdogs to ensure that open-source software stays “open”, by approving these standard types of licenses as being acceptable for promoting open source projects.

How is Open Source Software Commercialized?

Open-source software has become big business with many technologists seeing Microsoft’s $7.5billion acquisition of Github, the world’s largest open-source developer community platform, and IBM’s $34billion acquisition of open-source Linux provider Red Hat in late 2018 as providing credibility to the value of open-source software and projects. Other publicly-traded open-source enterprise software companies like Elastic Inc. and MongoDB have done incredibly well in the American public markets, achieving marketing-beating returns while sporting multi-billion-dollar market capitalizations.

These open-source companies have been able to create value by employing innovative business models to capitalize on the adoption of their underlying open-source software. For Red Hat, their strategy was to give to customers their open-source software for free but charge for support, consulting services, maintenance and support. For still-private Databricks, they have found that offering to remotely host the open-source software they develop has been another way of bringing in revenue. MongoDB and Elastic have created commercial-grade, propriety versions of their broadly-distributed open source software and provide enhanced features and support to convert free users of the open-source software into paid customers. This has so far proven to be lucrative and companies are finding even more to exploit this burgeoning area of the technology sector.

If you’re interested in learning more about open-sourcing licensing, Github & choosealicense.com are good places to start.

If you have any questions about open source software, feel free to contact one of our technology lawyers.