Commercializing Open Source Software: Do Property Rights Still Matter?

Abstract

TABLE OF CONTENTS I. INTRODUCTION II. THE LANDSCAPE A. The Proprietary Software Model 1. Formation and Maturation of the Proprietary Software Industry 2. Software Licensing Under Proprietary Models 3. Cross-Licensing: the Proprietary Equilibrium B. The Open Source Development Model 1. The Current State of Open Source: Commercialization 2. Software Products Licenses Under Open Source Models III. MOTIVATIONS FOR THE COMMERCIALIZATION OF OPEN SOURCE A. Open Source as a Viable Business Model 1. Predatory Motive: the "Kill Microsoft" Approach 2. Traditional Profit Motive: the Value Chain Approach B. Open Source as a Market Correction IV. THE EFFECT OF COMMERCIALIZED OPEN SOURCE A. Effect on Industry Organization and Innovation B. Effect on Intellectual Property Rights V. CONCLUSION I. INTRODUCTION For several years now, open source software products have been gaining prominence and market share. Yet the products themselves are not as provocative as the way in which they are developed and distributed. Two related features of the open source model are distinctive: the use of collaborative development structures that extend beyond the boundaries of a single firm, and the lack of reliance on intellectual property ("IP") rights as a means of appropriating the value of the underlying technologies. Firm-level control of intellectual property is replaced by a complex set of relations, both informal and sometimes contractual, among strategic partners not joined by firm boundaries. I argue here that those relations reflect not coalescence towards industry norms driven solely by superior output, but rather a series of strategic moves and countermoves that have had the effect of opening some markets while closing others, substantially reducing profit margins, and fostering consolidation of a traditionally fragmented industry. I have written elsewhere about the role of intellectual property rights in proprietary models of software development, where intellectual property rights are used (albeit somewhat ineffectively) by firms to exploit the value of their internal research and development ("R&D") investments. In that work, I generally reject the idea that the sheer number of patents is creating a thicket that deters innovation, largely because of the evidence of a robust startup market and of investors' lack of concern about patents held by competitors. More generally, I argue that many of the criticisms of software patents fail to account for the potential benefits those patents provide to smaller firms and focus much too heavily on the transaction costs associated with the massive patent portfolios that the larger industry participants have acquired (the so-called "arms race" build up). (1) Open source development models work differently. Because open source development proceeds on the premise that no individual or firm will have proprietary control of the software, the firms participating in those development projects might have little need for patents. The cooperative nature of development obviates any need for the actual and implicit cross licensing that provides access to technology throughout the proprietary software sector. The problem, however, is that the open source community does not exist in a vacuum. It exists in a world in which participants in the industry are building up large portfolios of patents, portfolios that pose a serious threat to open source development. Therefore, any thorough analysis of the role of patents in the industry must take account of the effects of the current property rights system on all participants. This Article takes up that issue. In essence, the problem is that open source developers can and often do operate outside of the IP licensing framework that dominates the software industry. Thus, many participants have no patents of their own with which they might protect themselves in IP litigation. …