It has been a little more than two years since the Free Software Foundation updated the GNU General Public License with the release of GPLv3 in June 2007. This revision made several important and far-reaching changes in the licensing dynamics surrounding the use and distribution of the open source software (oss) subject to it, but perhaps none so important as those impacting on software patents. We all knew these changes would have a dramatic impact, and now we are seeing this in our tech M&A deals, where oss covered by GPLv3 is implicated.
In a nutshell, GPLv3 provides that when a software company uses oss covered by GPLv3, the rights they convey to downstream users include a patent licence necessary to exercise the rights the GPL is intended to give them. Thus, one of the objectives of GPLv3 was to ensure that software patents — much more prevalent in 2007 when GPLv3 was released, than in 1991 when GPLv2 was crafted — could not be used to defeat the purposes of the GPL.
Incidentally, GPLv3 goes even further and releases users from liability for infringement of patents belonging to a distributor or creator of GPLv3 programs. This broad non-assert provision was another innovation in GPLv3 in 2007, essentially implementing the policy objective that a GPL licensor not be able to initiate patent litigation alleging infringement of the oss.
McCarthy Tétrault Notes:
One major impact of GPLv3 can be seen in tech M&A deals, where the purchaser of a tech target company has a portfolio of software patents. The target company often will not have any software patents, and so is comfortable using GPLv3 oss in some of its products or operations. On the other hand, the purchaser does have software patents, and therefore does not want to be in a position where, by acquiring the target company (and the oss it uses) it automatically has to grant patent licences to the installed base of the target company's software licensees.
The upshot has been that purchasers in such situations are insisting that the target remove the GPLv3 oss prior to the closing of the deal. Of course this can be a time-consuming and sometimes technically challenging, activity — hardly opportune given the usual objective of closing M&A deals quickly and with a minimum of closing conditions.
Accordingly, now that we are seeing how GPLv3 is being received by purchasers of tech companies, tech companies are well advised to review their use of and strategy with oss (but especially oss subject to GPLv3) prior to any M&A activity even being on the horizon. The use of oss should be carefully managed by the most senior managers of the company, rather than simply used for convenience by programming staff. And if a possible exit by means of an M&A deal is likely down the road, at a minimum the tech company needs a plan that will allow for quick and impact-free removal of the oss in the event the potential acquirer happens to have a software patent portfolio.
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