Open Source Issues in Mergers & Acquisitions

While there are several advantages to using OSS, including lower costs, potential quality improvements, and ease of use, a target’s use of OSS to develop proprietary software products could also carry with it significant risks for the acquirer. Improper utilization of OSS could substantially reduce, or even eliminate altogether, the value to the acquirer of the target’s software. Accordingly, it is imperative that a thorough and careful review of the target’s use of OSS be conducted as part of the due diligence process.

This article will focus on two of the risks associated with a target company’s use of OSS in the development of its proprietary software:1 (1) the risk that the target company’s software could have become “tainted” by the inclusion of OSS, causing the target company’s proprietary software to itself become OSS; and (2) the risk that, under an OSS license, the acquirer would have to refrain from enforcing its patent rights in order to reap the value of the acquired software. This article will also briefly discuss the potential consequences associated with failing to comply with the terms of an OSS license.