Friday, June 13, 2008

Red Hat Settlement and the Open Source Ecosystem

The recent settlement by Red Hat of its patent litigation with Firestar Software, Inc. demonstrates the differences how the cooperative nature of the open source industry requires a different approach to settlement of patent infringement litigation. Open source companies operate in an ecosystem of third party licensors, individual contributors, corporate contributors and users. Red Hat is in the middle of such an ecosystem, with relationships both to its upstream and downstream members. Any settlement of patent infringement litigation in the open source market needs to recognize the importance of protecting the entire ecosystem.

Although the terms of the settlement agreement are not yet public, the outline indicates that Red Hat understands this new reality.

The settlement has three significant characteristics which differentiate its terms from traditional patent settlement agreements:

1. The settlement covers all software licensed under the Red Hat brand, whether developed by Red Hat or third parties. This provision reflects the complexity of Red Hat's products.

2. Although the settlement focuses on Red Hat branded products, the open source industry, unlike the traditional software industry, permits third parties to create derivative works and combinations with other products. Red Hat reports that the settlement agreement covers derivative works of Red Hat branded products and combinations including Red Hat branded products. The scope of this protection will be very important and the actual terms of the settlement will be important.

3. Traditionally, patent settlement agreements cover the company and its downstream distributors and users. However, Red Hat has recognized that this traditional approach would not meet the needs of its community and negotiated a settlement that included the upstream members of its ecosystem. The settlement agreement also covers predecessor products of the Red Hat branded product.

Unfortunately, patent litigation is likely to become more common in the future. This settlement agreement is likely to studied carefully by those who draft future settlements.