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
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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guide to the subject matter. Specialist advice should be sought
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On March 11, 2009, the Office of the Superintendent of Financial
Institutions of Canada (OSFI) released a revised version of Guideline B-10, Outsourcing of Business Activities, Functions and Processes.
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