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. http://www.press.redhat.com/2008/06/11/red-hat-puts-patent-issue-to-rest/

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.

Patent Troll Fires First Volley at Open Source

The recent lawsuit in the Eastern District of Texas by IP Innovation LLC (and Technology Licensing Corporation) against Red Hat and Novell may be the first volley in a patent war against open source software. Acacia is a well known patent troll which has been buying patents for some time and works through multiple subsidiaries. http://trolltracker.blogspot.com/2007/10/acacia-targets-linux-in-new-lawsuit.html. Acacia describes itself as follows: The Acacia Technologies group develops, acquires, and licenses patented technologies. Acacia controls 81 patent portfolios covering technologies used in a wide variety of industries including audio/video enhancement & synchronization, broadcast data retrieval, computer memory cache coherency, credit card fraud protection, database management, data encryption & product activation, digital media transmission (DMT®), digital video production, dynamic manufacturing modeling, enhanced Internet navigation, image resolution enhancement, interactive data sharing, interactive television, laptop docking station connectivity, microprocessor enhancement, multi-dimensional bar codes, resource scheduling, spreadsheet automation, and user activated Internet advertising.

Although I and many attorneys in the open source industry have long been concerned about patent challenges to open source companies, this case appears to be the first by patent trolls against an open source licensor. The open source industry provides a tempting target because of its rapid growth. This morning, Eben Moglen at the Software Freedow Law Center Seminar on FOSS issues noted that Brad Bunnell of Microsoft joined Acacia on October 1 . According to news reports, Brad spent sixteen years at Microsoft at a number of positions which included General Manager, Intellectual Property Licensing. http://biz.yahoo.com/bw/071001/20071001005590.html?.v=1

Eben raises the intriguing question about whether these incidents are related. Given the time that it takes to prepare a patent lawsuit, Brad's hiring probably did not effect the filing of this lawsuit. However the hiring may indicate the addition of a new business line for Acacia: suits against open source companies. Steve Ballmer's recent comments about Red Hat's obligation to pay Microsoft for alleged use of its patents makes this lawsuit and the timing of the move interesting.

The seminar was a very helpful overview of the FOSS industry and the next set of legal challenges now that GPLv3 has been published and SCO has been defeated. In the afternoon, the Software Freedom Law Center provided an overview of the legal issues facing FOSS development from establishing contribution policies to entities for projects to patent issues for FOSS projects. The Software Freedom Law Center will be making some final edits and be posting it on their website in the next ten days. You should check their website: http://www.softwarefreedom.org/.