WHAT IP ISSUES ARISE WHEN USING OPEN-SOURCE SOFTWARE IN COMMERCIAL PRODUCTS?

INTRODUCTION

Open-source software refers to software whose source code is publicly available under a licensing scheme allowing use, modification, and redistribution under defined conditions. Nowadays many commercial products are heavily based on OSS components, libraries, frameworks, and modules in order to accelerate development and reduce costs. But "open source" does not mean "no legal obligations." Each of the OSS components you use includes a license, and you need to comply or risk IP infringement, being forced to disclose proprietary code, or facing expensive litigation.

This paper identifies the important IP issues that companies may face when including OSS in proprietary systems; we will spot the practical issues and the ways to limit risk.

COPYRIGHT & LICENSE OBLIGATIONS

LICENSE TYPES: PERMISSIVE VS COPYLEFT

OSS licenses are typically divided into two main subcategories:

(i) Permissive licenses: This type imposes few conditions (such as attribution or including license notices) and allows for the OSS to be combined with other proprietary code with few restrictions.

(ii) Copyleft licenses: This type imposes stronger distribution conditions on derivative works by requiring the distribution of any modification or combined works with OSS contents under that OSS copyleft license (also known as the “viral” effect).

By incorporating copyleft-licensed code into a commercial product, the entire derivative software could be forced into open-source, compromising the business's ability to retain proprietary control.

Derivative work, linking, and scope.

A central technical/legal consideration is whether the proprietary product becomes a “derivative work” of the OSS. The act of static linking (directly including OSS code) usually engages copyleft obligations. Dynamic linking or API interface creates less risk, but laws vary by jurisdiction. Erroneously estimating this boundary may create unintended obligations to publicly disclose code or relinquish proprietary rights.

Attribution & notice compliance.

Almost all OSS licenses require that copyright notices, texts of the licenses, and attribution to the original authors be retained in any redistributed code. A failure to do so may be treated as a breach of the license and could void the right to use the code, putting the company in urgency.

PATENT EXPOSURE & PATENT LICENSING

Patents Embedded in Open Source Software

Not all OSS works are devoid of patented technology. An OSS user would likely assume that the OSS license carried a patent grant; however, that patent grant would likely be rendered void if the licensee instituted a patent infringement lawsuit against the licensor (sometimes referred to as a "patent retaliation" clause).

Third-Party Potential Patent Rights

Additionally, it cannot be assumed that each contributor owns all potential patent rights. A contributor may not even realize that they are potentially infringing on another party's patent rights. For example, if a commercial product were to distribute this OSS, it could subject the commercial organization to potential patent claims made by a third party. Unlike a commercial software vendor, OSS communities likely do not provide any indemnification to the user or other contributors of the project, forcing the user to endure any litigation on their own.

TRADE SECRETS & CONFIDENTIALITY RISKS

Using OSS together with proprietary code runs some risk of contamination. If the developers inadvertently commingle proprietary logic with OSS contributions, there is potential to expose trade secrets. Additionally, there may be restrictions due to copyleft obligations to disclose distributed changes, which can present problems for internal confidentiality. Organizations must be diligent in clearly separating the proprietary and OSS code bases and also monitoring contributions to OSS projects.

LICENSE COMPATIBILITY & MIXED COMPONENT RISKS

Many commercial products incorporate multiple OSS components with differing licenses. Some licenses are incompatible (for example, a strong copyleft license won’t work if combined with a permissive license that explicitly prohibits imposing further restrictions). This means adding incompatible OSS together; there is a possibility the distribution of a combined product would be legally inadmissible. Studies suggest a large number of OSS projects show license incompatibility, which can represent a significant risk for commercial use.

TRADEMARK & BRANDING CONSIDERATIONS

Many OSS projects also have trademarks or project names/logos. Therefore, if they are used in a commercial product, they may confuse users into thinking there is an endorsement or affiliation and hence present a trademark liability. Additionally, many OSS licenses require some kind of attribution or final product notices stating origin, and if the attribution is incorrect or omitted altogether, it could violate terms of the licensing agreement.

ENFORCEMENT, LITIGATION & BUSINESS CONSEQUENCES

Legal rulings have demonstrated that open-source license obligations are actionable under copyright law as well as contract law. Remedies for violations can include injunctions, forced code contributions, or turnover of products. Additionally, because open-source license violations can be exposed in due diligence, acquisition deals can fall through because of inadequate OSS compliance. Furthermore, inadequate compliance can diminish the company's IP portfolio, scare off investors, or require costly remediation.

BEST PRACTICES & RISK MITIGATION

Create an OSS Policy & Governance

Develop internal policies and procedures to screen the use of OSS resources and then pre-approve its use.

Provide developer training so that they know their obligations regarding licenses and the difference in obligations from permissive to copyleft.

Set forth clearly defined guidelines on the internal use of OSS, contribution to OSS, and the use of OSS in conjunction with proprietary code.

Maintain a Software Bill of Materials (SBOM) & License Tracking

Use and maintain an SBOM that reveals an inventory of OSS resources by version and corresponding license obligations—and any modifications. Help prevent future licensing conflicts through scanning and internal audits of OSS.

Operationalize Separation of OSS and Proprietary Code

When using or modifying an OSS codebase, ensure that OSS resources and modifications are segregated modulo, containers, and/or interfaces to allow your implementation to mitigate the risk of unintended derivation or definition.

Complete Legal Review & Compliance Prior to Distribution

Before distributing any product, including OSS resources, ensure it has gone through some legal review to validate compliance of license obligations (e.g., source disclosure, attributions, compatibility, etc.) and that no patent risk exists.

Use Dual Licensing or Commercial Licenses

Where possible, draw on OSS under a permissive license, or negotiate a commercial license that removes any copyleft obligations. Some projects offer dual licensing so that commercial users can opt out of those essential terms.

Be Careful of Patent Offers & Patent Retaliation Clauses

Be cautious when using OSS that have patent retaliation clauses or restrict certain activities (like AI training). Ensure you understand patent risk exposure, and manage the relationship with contributors and the CLA (Contributor License Agreement) carefully.

CONCLUSION

Open-source software can provide substantial benefits in terms of speed, innovation, and economic savings. However, bringing OSS into a commercial product requires the same level of care as another licensed IP and is not merely “free software.” The majority of the risk associated with IP relates to copyright obligations, patent exposure, trade secret dilution, license incompatibility or other obligations, and trademarks. Business success will depend on appropriate governance, vetted compartmentalization of tech, legal review, and considered licensing. By caring for OSS components to the same degree one cares for proprietary software, a company can take advantage of the broader aspects of open source but also protect its IP and its commercial position.