Disruptive Tendencies

Can't see the forest for the weeds (Board governance at start-ups)

Why is it that management teams in start-ups assume their Boards want to get down into the weeds every Board meeting and why do Directors buy into this approach and behave like weed inspectors? Board governance isn’t about inspecting everything that management is doing; it’s about holding management accountable for those things that are material.

Start-ups are high risk, but materiality should be those things that have the potential to impact valuation or derail a liquidity event. Sure, the product roadmap (aka Feature List eye charts) is important, but is it more important than GPL compliance?

What impacts valuation more than revenue? Yet how often do you see a Board congratulating management for “hitting their numbers” rather than asking whether these are the right numbers to be hitting? There’s no point in patting management on the back for a year in which a company grew 10%, if the market and their competitors are growing at >50% year over year.  Underperforming the market equates to declining market share, which will ultimately impact valuation, multiples, and liquidity opportunities, none of which deserve a pat on the back.

Rather than showing slides that show how the company is “performing to plan”, how about a slide showing how the company is “performing to market”?

It’s a fact of life today that companies leverage open-source software. There’s tremendous pressure to hit dates and add features, and many engineers will look to SourceForge, or similar, for code to help meet development timelines. Without a robust open source license tracking process, it’s very likely that, over time, one’s code base may not comply with all of the license obligations associated with the bits.

Non-compliance is material. Just ask Cisco, which had to publish the source code for its Linksys line when found to be in violation of its open source license obligations. Every licensing and M&A deal that I’ve done has required a representation, signed by an Officer, warranting compliance with copyright licenses. Sophisticated acquirers will require a 3^rd-party compliance assessment using a tool like Black Duck, and being “caught” during a due diligence will cripple any deal.

So rather than spending the R&D section discussing feature lists, shouldn’t Boards be focused on mitigating the risks of non-compliance with open-source license requirements? Why shouldn’t R&D be required to provide a slide, every meeting, summarizing the open-source licenses for code being used in shipping product?  Shouldn’t the CFO and CEO be required to sign-off that the company is in compliance, every quarter? Just as Financial Statements are provided and signed off on, so should GPL compliance, and as with annual audited financials, management should prepare and provide an audited 3^rd-party compliance report annually as well.

Non-compliance puts the company and its investors at risk and should be a firing offence, first time, no questions asked. It’s not the engineer that should be fired, unless he/she knowingly violated company policy (that is monitored and real and not “vapor”), rather it is any Officer of the company that was aware of non-compliance or who has oversight and ultimate accountability. This means, in most cases, the CEO.

Many start-ups take a very ad hoc approach to intellectual asset management (IAM), which is odd since it is an asset class that forms the essence of a company’s value. You may see a slide in a Board deck that lists patent applications, but rarely do you see any level of competitive analysis, either in terms of competitors’ patent positions, or potential infringers of one’s own patents. Significant money is spent on patents, without an understanding of the business objectives for so doing. As a result, many patents end up sitting in a filing cabinet or as a plaque on a wall and are never used to the company’s benefit.

So why is this material? Once again, it has the potential to impact valuation. Having been directly involved in a multi-hundred million dollar M&A transaction, where the justification of the 30X revenue multiple was based on IP portfolio strength, I can attest to the power of a coherent, well-documented IAM process. When this is supported by the knowledge of 3^rd-party IP in your space, as with a patent landscape analysis, you have a powerful justification for including IP in any discussion of valuation.

Furthermore, Directors and Officers have a duty of care with respect to the management of corporate assets. Recently, I read an article that suggests a corporate officer or director, who is aware of an infringement of some patents owned by his or her company and who fails to enforce these patents, may be held liable for breach of the duty of care with respect to the management of corporate assets. I’m not sure whether it’s ever happened, but it makes sense for Directors to expect more than a simple list of patents.

Rather than a slide documenting a company’s patents (which I can Google or BING anyways), how about an analysis of your IP and your competitors’? How about a discussion on enforcement of IP with some clear guidelines around it? How about pushing management about disciplines related to invention documentation? Are the engineering notebooks signed and dated? What about an international filing strategy? Which markets? Why?

Board members have visibility into a company’s liabilities; monthly Balance Sheets show this, but what of off Balance Sheet liabilities? Many SmallCo’s are disadvantaged at the negotiating table and as such, sign deals with indemnification clauses that effectively “bet the company”. Any contract that includes clauses for liquidated damages or in which the company provides an uncapped indemnity, should require Board approval. At a minimum, it is the CFO’s responsibility to advise the Board as to the existence of these hidden, potential liabilities, but it is the Board’s responsibility to require this of the CFO.

Lastly, I’d like to point out that Directors and Officers have an obligation to all shareholders, regardless of share class. Most Board members are representatives of investors, and often have preferred rights of some kind. But it is incumbent on Directors to represent all classes of shareholders, including common stock holders, and not simply to represent their own stock class.

So what’s my dream Board meeting?

It’s one in which the company is measured, objectively, against those metrics that matter. It’s one that isn’t comprised of 100 eye charts describing the minutiae of the business, but which is focused on issues of materiality.

CEO/Sales: How fast did the business grow relative to the market and its competitors?

CEO/R&D: Are you monitoring open-source license compliance? Will you stake your job on it?

CEO/CTO:  How are you leveraging IP to limit competition, grow revenues, create value?

CEO/CFO: What “bet the company” contractual indemnifications exist? What contracts currently under review have “bet the company” clauses?

Ultimately, it’s the Board that needs to convey to the CEO that these are issues of paramount importance to the company, its Directors, investors and all shareholders and that he/she will be held accountable. Don’t take us down the garden path every meeting and don’t pull us down into the weeds. Show us that you have your finger on the pulse of those things that matter.

To paraphrase Peter Parker, “With great power comes great responsibility”, but that’s why CEOs make the big bucks.

That’s my .02!

Martin Suter

 

IP Licensing for the Technology Entrepreneur

Intellectual Property licensing is a complex subject with many moving parts. Unfortunately, it is rarely covered in modern business school curricula. The net result is that managers, C-level execs and Board members seldom approach IP licensing strategically, either in terms of monetisation or in the connection between license terms, and their potential impact on valuation and exit opportunities.

This set of slides attempts to simplify many of these issues for the business strategist - Board members, C-level execs, and senior managers. I have used subsets of this presentation to groups of Executive MBA students, corporate counsel and IP professionals and generally use them as a launching pad for a broader discussion. (To discuss speaking opportunities, please contact martin.suter at iplicensing.net).

These slides draw on my experience, as I have been fortunate to have been mentored by some very capable attorneys over the years (such as Cliff Chillemi, in-house counsel at MeshNetworks, and Jill Riola, Co-Chair, IP Group at Carlton Fields), and worked with top IAM strategists (people like John Cronin from ipCapital Group and Paul Germeraad from Intellectual Assets, Inc.). I have also sat across the table from many very capable negotiators representing companies like Dow Chemical, Microsoft and Motorola and had to justify IP licensing recommendations to VC investors across North America.

Feel free to share and comment.

That's my .02!

Martin Suter

(martin.suter at iplicensing.net)

Skype - Joltid Licensing Dispute: Epic M&A Screw-up?

eBay must be ruing the day that it signed the M&A deal to buy Skype for $2.6b, in addition to an additional $530m as part of the earn-out provisions. Its original vision of incorporating Skype functionality into its auctions never happened. Despite that, Skype has proven itself to be quite interesting as a standalone entity, with some value potentially to be recouped via a spin-out IPO. However based on an eBay 10-Q form filed with the SEC on 7/30/2009, this is now at risk over a dispute over a license.

It seems that some of the core functionality within Skype is based on peer-to-peer software licensed from Joltid, a company also controlled by the founders of Skype, Niklas Zennstrom and Janus Friis. So if I get this right, Joltid entered into a non-arm’s length license with Skype (pre-acquisition), a company that Zennstrom and Friis also controlled. When eBay acquired Skype, it would have known that while it was “buying” Skype, it wasn’t buying Skype source code, it was licensing it from Joltid. Given the amount of money involved in the deal, and the fact that the principals were the same, insisting on a perpetual, fully paid up license, in some Field of Use (voice, IM and video applications) with rights to derivatives would seem to have been very do-able.

Instead, it appears that Zennstrom and Friis pocketed a boatload of eBay cash, and retained control of Skype’s destiny via a licensing agreement. Now with the M&A (and liquidity) at risk, eBay is now over a barrel. Negotiate and pay for that fully paid up license, re-write everything, or write it all off as the worst deal of the century. OK, maybe that’s overstating it, the Time Warner-AOL deal sucked pretty badly too.

I’ve been involved with transactions that have nearly fallen apart at the eleventh hour because of legacy tech transfer licenses. “What do you mean we’ll have to pay 4% royalties ad infinitum? We’re buying the company!” When it gets to this stage and a deal’s at risk, the original licensor has all of the leverage, and will often be “bought off”, at the expense of the shareholders, to make the issue go away so the deal can get done.

Having negotiated multiple technology transfer and M&A deals, I have learned that it is imperative to construct the tech transfer deal with M&A in mind. Exclusivity in a well-defined Field, rights to Derivative Works, Non-Assertion of IP rights, a built-in cap or royalty buy-out to convert to a license in perpetuity, are all essential. Of course, in a non-arm’s length licensing agreement, like that between Joltid and Skype, the license terms would have been very different, but in this case it is incumbent on the acquirer to recognise this and force the issue while they have the leverage.

In hindsight, many would agree, this acquisition missed the mark strategically, resulting in a $1.43b writedown. But it’s hard to fault big, bold plays with the potential to break new ground. I have a deep admiration for those involved in transactions like that. But a key takeaway is the tactical execution by eBay’s M&A team appears to have missed the inherent conflicts of interest and let slide the licensing agreement with Joltid. Now, with no leverage, it’s biting them hard. Caveat emptor!

That’s my .02!

Martin Suter

(martin.suter at iplicensing.net)

Nortel’s Devolution to Non-Practicing Entity?

As someone who once wore a Nortel employee badge, and who counts many ex-Nortel employees among friends and family, watching Nortel’s descent from the peak has been hard to watch. Those, with better visibility into the decision-making than I, will ultimately dissect all of the wrong turns. 

Financial mismanagement, ill-conceived M&A deals, and strategic missteps have, unfortunately, landed Nortel where it is today – in bankruptcy protection and actively divesting entire businesses; its enterprise business possibly to Avaya, its wireless business to Ericsson. But like the Black Knight in Monty Python’s “The Holy Grail”, they’re “not dead yet”, despite hacking off multiple limbs.

When Nokia Siemens Networks’ bid was announced for Nortel’s remaining wireless business (CDMA and LTE roadmap), the decision to exclude wireless-related patents was a very strong indicator of intent. Under the terms of the announced transaction, NSN received a license to Nortel wireless IP, while Nortel retained ownership of said IP. According to reports, the Ericsson deal construct is very similar, with ownership of Nortel patents remaining with Nortel.

Once NSN’s stalking horse bid was announced, others emerged as suitors for the wireless business, including most notably RIM and the eventual winner of the auction, Ericsson.

Why would RIM pursue Nortel’s wireless business at the 11^th hour? Is it because it aspires to get into the CDMA/LTE base station business? I’m guessing not. Could it be that RIM saw Nortel’s moves signaling a fundamental shift in its future business model? Rather than remaining in the messy business of actually producing and selling product, why not sell off the operating businesses for a bunch of cash, throw in non-exclusive licenses to Nortel’s IP, and re-emerge as Nortel, the Non-Practicing Entity (aka Patent Troll)?

Few companies have been as badly burned recently, by NPEs, as has RIM. With its $612.5m settlement with NTP, for what ultimately amounted to the assertion of just a couple of claims (the validity of which was being seriously challenged), and more recently, its settlement with Visto for $267.5m, I’m sure RIM can see a day when Nortel, the NPE, asserts claims against RIM’s LTE products, at a cost to RIM that makes its $1b pseudo-offer seem reasonable. No doubt this is why RIM is rumoured, already, to be pursuing licensing discussions with Nortel for LTE patents.

A key here is that Nortel, as an NPE, would no longer be constrained by the usual rules of engagement that make the assertion of claims, by practicing entities (PEs), so rare. As a going concern, and even with an impressive patent portfolio (reportedly 5,500 patents), it would be highly unlikely for Nortel to assert its patent position against its main competitors. A kind of détente exists with patent holders, who understand that an assertion here will bring a counter-assertion there. The worst fear of PEs, however, is the NPE (or Troll), for which this détente is irrelevant, and where the business model is uniquely about asserting and monetising IP rights.

So Ericsson gets a pass on LTE patent assertion by Nortel, a key US customer committed to LTE, and a team capable of enhancing the CDMA to LTE migration story. Not a bad deal for $1.13b. And while one is tempted to feel sorry for NSN, its original bid of $650m turned out to be woefully miscalculated. One can only guess at what losing the deal with Nortel will end up costing NSN; in legal costs, eventual royalties and market share. Conversely, Ericsson will have gained in all of these areas. Kudos to its management team for realising this.

So what of Nortel? Can it make the transition from multi-billion dollar equipment vendor to NPE/licensing company? There certainly are precedents, even in Nortel’s backyard. Wi-LAN and Mosaid are two companies that have gone done this path, each of which has developed IP licensing as a core competency. Keep an eye on key Wi-LAN or Mosaid employees. If they start to leave, perhaps it’ll be to take on the challenge of monetizing Nortel’s patent portfolio. And if I’m Jim Balsillie, I’d be super pissed.

That’s my .02!

Martin Suter

(martin.suter at iplicensing.net)

The Battle Over Purple Play-Doh

One of the most contentious areas in licensing negotiations is in the area of ownership of derivative IP. The most effective articulation of the issue that I have seen was by Jill Riola, a highly capable licensing attorney working at Akerman Senterfitt in Orlando. During negotiations with a team of attorneys from a Fortune 500 firm that was licensing our IP, she brought it back to first principles:

·         We own our IP (blue Play-Doh)

·         You own your IP (red Play-Doh)

·         We are granting you the right to create purple Play-Doh, using our blue in combination with your red

·         But you do not own purple Play-Doh, because by definition, purple must contain some blue.

Furthermore, when viewed this way, all of the terms contained within the licensing agreement, including restrictions on Field of Use, royalty rates, etc., apply for all shades of purple Play-Doh.

We could get down in the weeds and occasionally lose sight of the issue, so it was amusing to watch how Jill would bring it back to first principles. “If it’s blue Play-Doh it’s ours…You own all of the red you can develop, but if it’s purple, you don’t own it, and you owe us if you sell any.”

Agree on who owns what Play-Doh upfront, and the specifics of the agreement will be much easier to draft later.

That’s my .02!

Martin

(martin.suter@iplicensing.net)

Play-Doh is a registered trademark of Hasbro, Inc. Its use herein is strictly to illustrate a legal concept. No endorsement by Hasbro is expressed or implied.

 

“Modern” China: The same old, same old

In May 1988, scant weeks after graduating with an undergraduate business degree, I had the chance to spend 3 weeks touring around China. Deng Xiaoping, the octogenarian leader, appeared to have recognised the need to open up to the west, but equally importantly, to loosen the internal controls imposed by a centralized, State-driven economy. In 1988, “free markets” were in their infancy within the country, giving farmers, traders and entrepreneurs the ability to freely trade, and profit, from their efforts. Using US fast food as a barometer for development, it was very early days. Beijing had but one KFC and Pizza Hut, and bicycles still ruled the capital. Pudong, across the river from Shanghai, was a vision, but ground hadn’t yet been broken. It was a time of general optimism in the country.

That winter, I moved to Beijing, and became an active observer and participant in the apparent opening up of the country. Not once did I feel threatened or that my actions were controlled in any way. I traveled the country freely, engaged in open discussion with students wherever I went, and watched, without any trepidation, as the student/democracy movement took shape in late spring 1989. When the army rolled into Tian an’Men Square on June 3-4, 1989, I felt betrayed. My naiveté and the western lens through which I had witnessed China’s “opening up”, had prevented me from acknowledging that it remained a tightly controlled, Communist country. The brutal crackdown, and subsequent months of living under martial law, gave me an up close and personal look at how effectively the Party leadership was able to swing the other way – moving from open to closed overnight.

Years have passed. Deng Xiaoping is dead and the torch has been passed to a generation of leaders that is too young to have been on the Long March. Beijing is now a sea of privately owned cars, Pudong glistens, and the world is beating a path to Beijing’s door for this summer’s Olympics.

But as I sit here this morning, I was appalled to see that a Chinese court has just sentenced Lu Gengsong to four years in prison on subversion charges. His crime? He published 19 essays on the Internet about corruption. Now, apparently “corruption” is something the Chinese take seriously. Many bureaucrats, including city mayors, have taken a bullet in the back of the head during periodic crackdowns. But Mr. Lu must have hit a nerve as he will spend the next four years in a Chinese jail. Having been inside of a prison in Shandong, think Midnight Express without the opium to dull the pain.

Is Lu Gengsong’s case an isolated incident? Not according to the article:

“China's ruling Communist Party is cracking down on human rights activists ahead of the Olympics, and still maintains tight control over all media and the Internet.A leading Chinese dissident, Hu Jia, who chronicled the plight of other dissidents through the Internet, was taken from his home in December and was recently arrested and charged with inciting subversion.The New York-based Committee to Protect Journalists labels China the world's leading jailer of journalists, saying at least 29 reporters are currently locked up.”

I know what you’re thinking. “This is a blog on intellectual property. So where’s the connection?”

Intellectual property is a fundamental principle in a free market system. Individual rights and freedoms are integral elements, and include freedom of expression. How can a country that represses free speech, controls information access (Great Firewall of China) ever be expected to play within the rules established for the treatment of intellectual property.

US foreign and economic policy is born of convenience. It needs access to vast quantities of oil to preserve the industrial base, so the Saudi’s sponsorship of madrassas throughout the Muslim world was ignored, even though much of the hatred and vitriol directed our way was fomented from within these schools. The US needs access to the Chinese market and knows that a disproportionate amount of its debt is held by the Chinese, and so it conveniently ignores gross breaches of human rights.

The world reacted in horror in 1989, pulled back momentarily, but economics abhors a vacuum. The world feigned shock at the brutal actions of the central government, but on reflection decided that its suppression of the student movement was somehow to have been expected.

China has a different playbook, and while they may appear to play by civilized rules, their actions show otherwise.

That’s my .02 for today.

Martin Suter

(martin.suter@iplicensing.net)

Asymmetrical Licensing as a Go-to-Market Strategy

In my last blog, I described some of the real challenges facing start-ups that need to get a technology to market. Of course, there are categories of companies for which the front-end load of R&D costs to productise is lower (e.g. software vs. hardware), however the challenges of funding the commercialization of a product are relatively common across all categories.

Frequently, a start-up may attract seed funding on the basis of the team, an idea, and a vague view of some massive, future market opportunity. For this, the founders give up a big chunk of the company, and embark on delivering a proof-of-concept. This critical milestone is typically the trigger mechanism for another round of funding designed to get the company closer to product and customer traction. Ideally, this proof-of-concept is leveraged into customer/partner/market interest, with sufficient “buzz” to secure enough money at a reasonable valuation, so the founders and the seed guys aren’t crushed.

The problem, is the disconnect between where the company’s really at in the eyes of new investors (“So you've got no product, no customers, limited market proof points...but we DO like you”), and the eyes of the company and the seed guys (“Hey, this stuff really works. You should be blown away by the technical accomplishment”).

So, therein lays a challenge. Facing massive dilution from new investors, likely alongside liquidation prefs, other onerous terms and a promise to hold additional funds in reserve to ensure later financing is available, the early stage guys and the founders face a difficult decision. Lose control of the company to later stage investors in order to get to revenues or...What other options do they have?

An important option that remains, IMO, largely misunderstood, is the licensing of technology to an 800 lb gorilla as a non-dilutative means of generating revenues and helping you to monetize your technology. Frequently, their strengths are your weaknesses: money, customers, sales coverage (direct and channel), manufacturing/supply chain relationships, global support, brand, etc. Trying to displace an 800 lb gorilla that is intent on maintaining market share on your own, is like me trying to budge a sumo wrestler. It ain’t gonna happen.

However, if you think about what you bring to the table when viewed thru the eyes of the big guys: innovation, agility, de-risking of technology development, competitive advantage and time-to-market, all of which are worth something to the right partner. Their motives may be offensive (moving into a new market with a disruptive technology to displace an incumbent), or defensive (preserving dominant status in beachhead markets with next generation technology). In either case, knowing where the hot buttons are will be key to getting to the negotiating table.

Structured correctly and presented with conviction, technology licensing can be a means to generate early revenues, get market traction and acceptance without requiring a massive shareholder dilution post-proof-of-concept.

What do these deals look like? What are the issues? Stay tuned…I’ll get to that soon.

That’s my .02!

Martin Suter

(martin.suter@iplicensing.net)

Go-to-Market Challenges for Start-ups

A very real dilemma facing the majority of early stage, pre-critical mass companies is how best to commercialise their technology. Most companies grossly underestimate the time and expense to first productise and then again to commercialise their IP. Depending on the physical form factor of the “product” to be commercialized (i.e. software vs. hardware vs. semiconductors), the cost of productisation may be in the tens of millions of dollars.

But this is what engineers do, they build. Damn the torpedos, full speed ahead. But taking an “If we can build it, they will come” view of the opportunity is dangerous and naive. Getting product to market is exceedingly difficult; often more so than building the product in the first place. Companies present rosy market forecasts to their potential investors, but building up a sales force and a channel that is adequate for coverage and sales capacity to get anywhere near most projections is very expensive and time-consuming.

How much quota are the reps going to carry? What’s a reasonable ramp? If it’s an evangelical sale, it’s unlikely that any rep will get anywhere near quota for at least 18 months. What is the per rep revenue number that you expect to bring in? What headcount do you need to support this...Marketing to create programs and demand generation, Finance to manage a growing payroll, along with accounts payable and receivable, Customer Service and Technical Support to scale to the projected number of customers required by the projections, etc.

What is the market window? If it takes 2-4 years to build a highly functioning sales channel, what percentage of the market opportunity has already passed?

Lastly, young companies almost always underestimate the stickiness of vendor/supplier relationships, especially if they’ve got a component that they’re trying to embed in someone else’s device. Imagine how difficult it is to sell into a risk adverse industry like the automotive industry, where their product roadmaps extend beyond 15 years, while yours are lucky to extend 15 months. Security of supply, financial stability, and corporate longevity are just three, of many, considerations that a start-up must contend with in order to close a sale of this type.

Next, I’ll talk about IP licensing as a go-to-market strategy.

That’s my .02!

Martin

(martin.suter@iplicensing.net)

The Open Source Red Herring

The biggest problem that I have with the open source ecosystem is that it obfuscates its commercial motives behind this banner of altruism. The attempted distinction between commercial vs. open-source, with the implication that open source is somehow not commercial, is a red herring.

Open-source is also commercial. Look at the companies behind Linux - IBM, Google, Oracle, Sun, Novell, Red Hat. Does anyone really believe their support of Linux is altruistic or that they’re motivated by the distribution of “free” software? If profit is not their motive, someone better tell their shareholders!

In the mid-80’s, the Canadian government reduced the patent protection afforded to pharmaceutical companies from 20 years to 10. From this, tremendous wealth was created for the owners of two generic drug manufacturers, Apotex and Novopharm. Were these companies acting out of the interest of the general population or were they parasitic offspring from a flawed premise? Each of these companies chose to remain private, and therefore able to keep their financial records away from public scrutiny, while the “commercial” pharmaceutical companies opened their books to the market, and to criticism. The owners of the generics became billionaires, not because they were running charities, but because they were able to monetize others’ IP and risk capital.

Sure, Big Pharma is profitable, but it is not at the expense of society. Rather, it is frequently to the benefit of society. Look at how the invention of H2 receptor antagonists changed the treatment of ulcers and reflux esophagitis. Twenty five years ago, ulcers often required surgical intervention, but Tagamet changed the rules of the game. Did the profit that SKF made come at the expense of society or did the invention of a disruptive technology (if you were a GI surgeon!) warrant these profits?

Under what terms does Google license Linux? How much does it “give back”? I’m suggesting that it is highly selective as to what it “gives back” to the open source community, and makes these decisions based on its own self-interest, not out of some altruistic motive. Google search algorithms are deeply guarded secrets, and its vaunted server farm architecture is “proprietary”. Is there anything wrong with this? Of course not. Just don’t pretend that you’re somehow better than the “commercial” vendors because you promote open source development opportunistically.

"This is what [Summer of Code] is really about: infecting students with the free software spirit, giving them the opportunity to grow into a community like ours."

There's another more subtle benefit, as DiBona explains. Thanks to the Summer of Code, "Google now knows all the people working on all these software projects, on which it depends," he says. "That's incredibly useful to us. Every once in a while we'll come out with a new API and there'll be some projects in the open source world that might be useful in either using that API or being a customer. You can just call them up and say, 'hey guys, it's Google, we're you're pal,' and let them just check it out." (http://redmondmag.com/features/article.asp?editorialsid=2395)

I have never heard, nor do I ever expect to hear, any allusions from Microsoft that it is anything but a profit-driven, commercial software vendor. As a shareholder, I expect nothing less.That’s my .02!

Martin

Ethical Dilemma Over Linux-based Website

This past week, I decided to add blogging capabilities to this site and was surprised to find that my web hosting service (1and1.com) only has blogging options in its Linux Hosted Business offering. Coming from the commercial software business, I made a conscious choice 4 years ago to opt for the Windows Hosted service. But, I was now confronted with a choice that required some serious thinking about whether the move to open source was compromising my moral code.

"What's he talking about?", I can hear you asking.

As an Objectivist (by choice), a capitalist (by default), and an IP licensing executive (by profession), my quandary over open source software really sits at the intersection of these three areas.

My moral compass has largely been set by the influences of Ayn Rand in my formative years. Her views on individuals' rights to their own work motivated me to gravitate towards IP licensing. Her view on capitalism (in its purest form), is that it's the only moral economic and political ideology and is the manifestation of an individual's right to their work as well as their ability to profit from it. As a consequence of the nobility of the profit motive, she profoundly mistrusted altruism.

Is Linux/open source, software for socialists? Are those involved in its development doing so out of an altruistic agenda? Does its use equate to theft of someone else's IP?

I opted to start with the last question first, and printed off the GNU General Public License that I was required to enter into if I were to switch over to Linux. It's highly readable, much more so than most commercial EULAs, and is eminently clear about the rights and obligations assumed by developers who choose to modify the code base. While everyone has the right to do so, any changes they make must also be made available, as source code, under the exact same terms as the original license - free of charge and without warranty.

Now as a named co-inventor on only 1 patent, I'm not smart enough to be called an inventor myself. I do know, however, that most inventors will say that their work builds on the work of others. "Prior art" is an important concept in intellectual property, requiring citation in academic publications and patent filings. Is the source code that one gets not the same as prior art? What about derivative works based on this prior art?

Two of my favourite words to help answer this are "but for". In discussions about IP licensing, a key principle that arises regarding ownership of derivative IP can be summarised as follows: "But for the existence of the background IP, the derivative work could not have been created." This gives the background work foundational status and means that the creator of the derivative works has a legal obligation to the owner of the background IP.

In this regard, I guess that I'm OK with the requirement to forgo any claims to derivative works. Developers decide, of their own free will, to build on top of open source knowing full well what the implications are for their IP.

Next time I'll take a swing at the question: Is open source software for socialists?