Not as permissive as you think? Implications of OSS licenses underpinning blockchain technologies – Commentary

Why are OSS license terms important?
US License Terms and Ethereum
Advantages and disadvantages of using OSS
Comment

Open source software (OSS) has underpinned the success of blockchain technologies such as Ethereum, which supports one of the highest cryptocurrencies by market capitalization, as well as a growing ecosystem of smart contract solutions and decentralized apps. Those who develop or distribute software protocols using blockchain technologies such as Ethereum must be aware of the commercial and legal implications of the OSS license terms that underlie them.

Why are OSS license terms important?

Before looking further into Ethereum, here is a summary of OSS considerations:

• OSS is software licensed with:
  • source code included; and
  • the right to modify and distribute the software.
• Software developers typically have two main concerns regarding using OSS:
• the level of security (given that the OSS source code is publicly available); and
• whether restrictive, copyleft or “viral” US.
• Whether OSS is permissive or restrictive depends on the conditions:
  • Permissive OSS licenses allow a licensee to freely modify OSS code and combine OSS code with other software code (a “derivative software”) without placing restrictions (or any significant restrictions) on the derivative software and how it can be subsequently licensed.
  • Restrictive, or copyleft, OSS licenses impose licensing restrictions on both the use of the original OSS code and any derivative software. Developers of derivative software subject to restrictive or copyleft OSS provisions must allow anyone to view and use the source code of the derivative software under the license terms governing the OSS used to create the derivative software. Copyleft licenses are therefore sometimes called “viral OSS” because they have the potential to infect any new code developed, which can limit the basis for distribution of that new code. For this reason, developers and technology companies may prefer to avoid restrictive OSS and therefore have to disclose any part of the source code and risk competitive or proprietary advantages.
  • “Weak copyleft” OSS licenses allow, to varying degrees, use in derivative software without triggering copyleft obligations. However, it can be difficult to say definitively whether derivative software will avoid triggering copyleft obligations, especially if the relevant OSS license terms leave matters open to interpretation.

Ultimately, developers must understand the type of OSS code they are working with and carefully review the relevant OSS terms on a case-by-case basis. This becomes particularly critical if the value of derivative software depends on the proprietary nature of the code.

US License Terms and Ethereum

This section reviews Ethereum’s license terms from the perspective of a developer who wants to use it to develop a blockchain software protocol. According to the Ethereum Foundation, Ethereum is both an open source platform as well as a free software where “anyone can inspect the code … run the code to secure the network … and distribute the software”. Does this mean that the Ethereum code is licensed on a permissive OSS or restrictive OSS basis? If restrictive, how restrictive?

There is currently no simple answer to this. There is no single set of OSS license terms that govern the use of Ethereum in general. Instead, the Ethereum Foundation has a segregated OSS licensing strategy where different OSS license terms apply to Ethereum’s different components (ie its core, application and middleware offerings). The Ethereum Foundation has yet to determine the licensing basis for its core offering, which introduces even more uncertainty and risk for developers and end users.

Whether Ethereum is permissive OSS code or restrictive OSS code has significant implications, as detailed below.

Permissive OSS licenses allow developers to keep the source code of derivative software confidential. In contrast, restrictive OSS licenses require developers to disclose new proprietary code in derivative software. Requiring developers to allow anyone to view and use the source code of such derivative software would be commercially unpalatable to many developers.

Advantages and disadvantages of using OSS

Why would blockchain software developers use OSS code? As is the case with all software development (not just for blockchain software), some of the benefits include:

• the lower development costs of using already available and accepted building blocks, freeing up valuable development resources for proprietary developments;
• enhanced competition, as competitors are also likely to use the same OSS code; and
• reduced logistics and marketing costs, as OSS is often more reliable from being subjected to constant technical peer review by many developers, including in the case of Ethereum.

The risks of using OSS must also be considered together with any benefits:

• viral OSS risk, as described above – namely having to disclose proprietary and confidentially developed software due to copyleft obligations;
• OSS risks are often highlighted during transaction due diligence, potentially creating obstacles or delays in seeking investment or satisfying guarantees. Investors can insist on not using any OSS. It can be difficult to allay concerns even over weak copyleft or permissive OSS due to often broadly drafted license terms; and
• in commercial arrangements, software providers may be required to guarantee that their solution does not involve any restrictive OSS. Customers may not want to bear the legal risk of failing to comply with OSS license obligations affecting distribution, which could result in the licensor asserting a claim of copyright infringement and seeking remedial action including monetary damages and injunctions, as well as being forced to disclose derived software source code.

Comment

Blockchain technologies are incredibly valuable and have the potential to support breakthrough use cases. Both developers and customers must be aware of the risks and liabilities that may come with using blockchain offerings coded using the OSS and the license terms that govern them.

For further information on this topic, please contact Marcus Bagnall or Siobhan Lewis at Wiggin by telephone (+44 20 7612 9612) or email ([email protected] or [email protected]). Wiggins’ website can be accessed at www.wiggin.co.uk.