‘Everyone uses opensource it’s fine’

Is it really?

Smart investors are asking more and more questions about software provenance.

So what are the opensource licence risks?

Investors need to know what they are buying has opensource code lurking which allows others to share in the profit from the code. Is it something truly unique, or something fully or partly built of code copied from publicly open sources.

Many investors and buyers have walked away when these issues surface. The risks to the entrepreneur / owners are that requested guarantees can be painful.

Due diligence is part of an exit or investment process. This means that legal, financial and domain experts scrutinize and assess the company to verify whether the valuation is fair and/or correct. The start-up’s value proposition will include representations of competitive advantage, which in turn will require proof of intellectual property ownership, protection against copying and demonstration of barriers to entry.

If the product/service at the core of the company is built on too much opensource, the company may not actually be in a position to claim ownership of core business intellectual property (such as proprietary code, copyright and trade secrets) which in turn may yield a company valuation far less than desirable.

Opensource code, believe it or not, comes with license agreements. This can require disclosure of your own valuable proprietary code! This is a little known ‘hidden’ risk lurking in the code in many businesses, where they can be given notice to comply with an opensource general public license (GPL) to make the code available to those that request it. The risks of non-compliance are termination of the licence to use the code and a Copyright business intellectual property  infringement suit.

Opensource can be very helpful, but make sure you properly understand any license restrictions.

Do you know what opensource risks are lurking in your code?

This article first appeared a year ago and was co-written by me with the excellent Elin Hauge

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