Technology

A Perfectly Imperfect Marriage: Blockchain And Open Source

The blockchain industry has not been very attentive to the selection of licenses used for their projects. It's time for that to change.

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Many blockchains such as Ethereum, Bitcoin, HyperLedger, and Corda are licensed under open source software (OSS) licenses. As an increasing number of enterprise clients experiment with blockchains, an understanding of these OSS licenses is critical for company attorneys. I recently spoke about blockchain innovation at NetApp with Mark Radcliffe, partner at DLA Piper. Below is my list of takeaways:

Blockchain and OSS Go Together

“OSS is ubiquitous and if you are told by your technical people that you are not ‘using’ open source, you have a problem,” says Radcliffe. “You are probably using open source without managing its use, thus creating risk for the company and project.”

OSS in Blockchain Must Be Managed

According to Radcliffe, “The use of OSS needs to be managed, both inbound and outbound, because customers are demanding to understand how you manage compliance with the terms of OSS licenses which is likely to be part of your product.” He explains, “If you are seeking financing or an exit, your management of OSS licenses will be scrutinized closely by the investor, or the acquiring party, M&A is particularly strict since they need to ‘live’ with any mistakes.” According to Radcliffe, the failure to manage OSS may reduce the consideration in an M&A transaction or shift more of the consideration to “escrow” which is not released for one or two years.

OSS Can Be Costly

OSS is no longer just about “sharing software” on the terms of OSS licenses with limited enforcement by community members. Radcliffe observed, “An increasing number of commercial companies using dual licensing models, such as RedisLabs, in which the licensing company has a financial interest in ensuring that you are in compliance with the open source license. In other words, they want to sell you a commercial license.” And in Europe, a contributor to the Linux software has become a “copyright troll” and is greenmailing users of Linux software because of the difficulty of complying with the Linux OSS license, GPLv2.

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OSS Must Be a Part of Your Strategy

Radcliffe explained that OSS can take on strategic importance. “Many companies have realized that maintaining certain software may not confer significant commercial advantage and they should consider ‘spinning it out’ to get a community to support it and reduce the costs of maintenance.” Companies need to consider where they achieve value in the software stack and consider “open sourcing” other parts of the stack to gain competitive advantage.

OSS Can Be Show Stoppers

According to Radcliffe, the blockchain industry has not been very attentive to the selection of licenses used for their projects. He explained, “Many companies’ legal or compliance departments restrict them from using software under the GPL family of licenses, the mainstream Ethereum clients currently use licenses from the GPL family. We have heard stories of enterprises that completed a successful pilot on Ethereum, only to be stopped from going to production because of company policies around open source licenses.” Recently, PegaSys developed an Ethereum client and licensed it under a permissive license, the Apache Software License, version 2 to encourage enterprise adoption. Blockchain projects need to carefully consider their user base in selecting the right license for the project.

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Olga V. Mack is an award-winning general counsel, operations professional, startup advisor, public speaker, adjunct professor at Berkeley Law, and entrepreneur. Olga founded the Women Serve on Boards movement that advocates for women to serve on corporate boards of Fortune 500 companies. Olga also co-founded SunLaw to prepare women in-house attorneys become general counsel and legal leaders and WISE to help women law firm partners become rainmakers. She embraces the current disruption to the legal profession. Olga loves this change and is dedicated to improving and shaping the future of law. She is convinced that the legal profession will emerge even stronger, more resilient, and inclusive than before. You can email Olga at [email protected] or follow her on Twitter @olgavmack.

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