Open Source Code in Mergers and Acquisitions


The use of open source code is growing every day, and in some sectors the use of such code has exceeded all reasonable expectations. As always, such "new" phenomena provide both opportunities and challenges. The latter includes the many pitfalls that open source code generates in business takeover situations.

Open source code means that the source code to a computer program is publicly available (most of the time on the Internet), and that third parties are allowed to use that source code under a license that fulfills certain criteria. The most widely used open source license is called GNU General Public License (hereafter "GPL").

When an open source code has been implemented into a software program, the license agreement imposes certain conditions upon the owner of that software program. For example, the GPL states that if the software is fully or partly based on an open source code, and you distribute that software, then the receiver of that software is entitled to also receive the full source code to the software and to use it in accordance with the GPL. This means that the GPL has a "virus effect" – it has an inherent ability to propagate.

Not all open source licenses contain this requirement. For example, the BSD License and the Apache License do not have that same "virus effect". However, such other open source licenses do contain other clauses imposing various obligations upon the person or company using the open source code, i.a. about notices that one must, and notices that one must not, give when distributing the software.

Today software based partly or fully on open source code includes much more than software programs which are designed to be run on general purpose computers (PC, laptop, Mac etc). Such software is also to be found in computer related hardware, such as modems, printers etc. Open source software is even to be found in cars, telephones, audio systems, GPS navigators etc.

Now to the tricky part. When a company considers buying another company, and that target company is in some manner distributing software, then it is extremely important to know (1) whether or not the software is fully or partly based on open source code and (2) if so, what obligations this entails. Unfortunately, not everyone who distributes software is aware that open source code has found its way into their code. This can happen by accident or perhaps a software developer has taken a shortcut by using open source code without telling.


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