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Why the Linux Community Needs Open Source Insurance

The Linux community needs a collective, vendor-neutral defense

Last year, after 10 years of almost unbelievably rapid adoption, two new things happened: Linux distributions began to dominate the commercially vital "Post-PC" market for embedded devices; and massive clusters of inexpensive Intel boxes running Linux became a viable way for huge IT-dependent enterprises to run applications from Oracle, SAP, and others, as well as their own custom applications, while saving tens or even hundreds of millions of dollars in direct and indirect hardware and software costs. Providing Linux-related services to corporate clients was a $3 billion opportunity last year - but the explosion of Linux at both the device and enterprise levels now suggests it may well prove to be a $50 billion bonanza within 10 years.

In America, whenever so many billions of dollars get involved, companies under pressure hire lawyers and begin suing each other. Why? Because litigation works well enough, often enough, to get plaintiffs' lawyers excited. For example, before it sued IBM for $3 billion and began claiming publicly that intellectual property it owns got incorporated illegally into the Linux kernel, the SCO Group was a mangy dog of NASDAQ, with a market capitalization of under $25 million, a collapsing business model, and financial statements that suggested it might be a few quarters away from a Chapter 11 filing. Within months of hiring an outstanding litigator, David Boies (best known for humiliating Microsoft in the Justice Department's antitrust case) and hatching a new business plan based on challenging the provenance of the Linux kernel in court proceedings and in public statements, SCO was able to collect over $12 million in new license fees from Microsoft (no hard feelings, David) and Sun, raise over $50 million in new cash from undisclosed equity investors, and see its stock price rise from a low of $1.30 to more than $15 per share, giving it a market capitalization of more than $200 million. Although insiders sold more than $4 million worth of their own stock, an analyst at Deutsche Bank put out a "buy" recommendation and a price target of $25 per share. All this bullishness while the vast majority of journalists and legal analysts who have studied SCO's legal claims find them generally unsupported, at least by the evidence SCO has made public to date.

Regarding both how the Linux kernel got assembled in the first place, and how courts will interpret the General Public License (GPL) under which it is made available, there are a wealth of factual and legal ambiguities out of which skilled lawyers can make plausible-sounding arguments. One can only imagine what will happen to the stock price of the first company that makes a legal claim against the Linux kernel that impartial commentators actually find to be persuasive! When the potential financial rewards of doing so remain so high, it is a virtual certainty that we will see other plaintiffs bringing significant lawsuits, against both vendors and end users of the Linux kernel, within the next few years, even if SCO's current claims are categorically rejected by the courts.

My company, Open Source Risk Management, engages in "war gaming" around Linux and other free and open source software - evaluating "what-if" and "worst-case" scenarios in order to identify the most likely sources of plausible legal claims against end users. We then advise our clients about how to mitigate, or hedge, these risks, and calculate appropriate loss-reserve levels. Two risk areas that have already been well publicized - so I am not giving potential plaintiffs any new ideas - are patent claims and new copyright claims based upon the more than 30 proprietary Unix "flavors" not directly involved in the current copyright dispute between SCO and Novell. (That dispute's impact on end users will in our view eventually boil down to the legal issue of whether AT&T's secret 1993 contractual agreement to drop its copyright lawsuit against BSD and not to sue users of BSD Linux will also remain binding on the successors in interest that are each defending AT&T's rights.

Valid patent claims will be tricky because they potentially cannot be resolved by rewriting, because they ostensibly could cover the "function" of the code. And under some interpretations, if a third-party patent makes it impossible to license the code without paying a royalty of some kind to a third party, the GPL's little-known "freedom or death" provisions could be activated, terminating the entire permission and making the end user liable for extensive copyright violations as well.

On the issue of tracking down who else besides Novell and SCO now holds copyrights that could form the basis for claims against Linux, we have enlisted the help of Pamela Jones, the creator of Groklaw.net. On February 4, 2004, PJ launched the Unix Timeline Project, where more than 400 volunteer contributors, including many of the original creators of Unix and its most eminent historians, are researching every nook and cranny of the tangled licensing history of these sometimes overlooked "other Unixes."

End Users Aren't Protected

A number of prescient for-profit companies calculated that making large financial contributions to an open source operating system that none of them completely owned or controlled but all of them could shape to their needs - Linux - would serve their individual business interests well. For example, IBM and Oracle claim to have each invested over a billion dollars, not only to make their products work well with Linux, but in contributions to the kernel that make Linux work well with their products. And Novell remade itself completely; from a legacy vendor of networking systems, it became the first company to offer a complete Linux stack from enterprise server to desktop application suite. And thanks to a number of innovative vendors, embedded device application developers, who in the past often had to write laboriously hardware-specific software, got powerful new tools that allowed them to write once - for Linux - while leaving Linux to handle the diverse hardware interfaces, rendering proprietary embedded device operating systems largely obsolete.

But the terrible vulnerability of this amorphous shared licensor/copyright holder structure is that the open source code base has no single unified owner who will assume liability, and coordinate a collective defense for the open source community, when end users get sued. And, although this came as a shock to many nonlawyers, both individual and enterprise end users of GPL software that violates a third party's patent rights or copyrights are directly liable (for up to $150,000 per instance of copying for copyright, and up to the lost profits for patent violations) and cannot get these exposures covered by the vendors who licensed them the software or recommended it to them. And if you are paying for legal defense yourself - which can easily cost $3 million in the case of a single patent defense, for instance - the rational course may well be to settle for the nuisance value of the suit rather than fight to the death. Plaintiffs know this, and they know they can extract monies from uninsured defendants even with unmeritorious claims. This is why OSRM looks not only for legitimate claims against Linux, but also superficially plausible ones - what lawyers like to call "colorable" claims.

The for-profit companies have publicly begun to offer limited indemnification - and do more for big customers on a private custom-negotiation basis - but none of the vendors will cover software you got from their competitors or third parties, or modified, or shared with other companies, or fixed bugs in yourself, or got maintenance for from a new service provider without relying on their on-going support contract, etc. In other words, if your company does the things it must be able to do in order to preserve the very efficiencies - or, as Richard Stallman, author of the GPL, prefers, the "freedoms" - of an open source development model, avoiding the "lock-in" of proprietary software, your indemnification will be voided.

The Answer Is Insurance

Rather than demand of vendors that they do what they will never feel comfortable doing - in effect asking them to indemnify their competitors' products and services - we believe that a much better long-term solution is vendor-neutral open source insurance. We propose to offer insurance against a wider range of claims than vendor-based indemnification can cover: not only copyright, but patent, trade secret, and unfair competition as well as other, more novel claims like security breaches, identity theft, etc., and for a wide range of user activities than vendor indemnification reaches: sharing code, modifying code, acquiring code from multiple sources, etc.

OSRM believes that it is in the long-term interests of all the Linux vendors in this marketplace to support a collective, vendor-neutral defense of the open source development model through open source insurance, and we are in fruitful discussions with a number of vendors as I write. One compelling industry-wide result of offering vendor-neutral open source insurance is that end users will be better protected against third-party claims when they use open source and its development model than they are when they use any alternative proprietary software. Then open source wins, not only on grounds of efficiency, freedom, and cost, but in regards comprehensive risk management as well.

More Stories By Daniel Egger

Daniel is the founder and chairman of Open Source Risk Management, LLC, bringing more than 10 years of commercial software development, risk management, and finance experience. Daniel is a graduate of Yale University and the Yale Law School and is currently the first Howard Johnson Foundation Entrepreneur in Residence at Duke University.

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Most Recent Comments
Johnny Appleseed 04/16/04 04:53:25 PM EDT

No offense guys, but this does smell like an insurance scam like a previous poster indicated. End users of free software have to worry about copyright violations as much as end users of textbooks-- they don't. Remember that SCO is suing Autozone and Chrysler (or whoever it was) for contract disputes. If there is no copying beyond fair use (in the USA) then there is no copyright infringement-- this is straightforward. Patent infringement is another thing altogether, and what exactly is your insurance company supposed to provide? Any software that does commonly useful things violates U.S. patents. You know this. Companies which provide medical insurance are reluctant to insure those with pre-existed medical conditions, for obvious reasons. Yet you guys seem like dreamy-eyed venture capitalists looking for that once-in-a-lifetime smack deal. Please reconsider this. If it catches on, you'll be setting a bad precedent, and will make it harder for companies w/o insurance to defend frivolous copyright claims.

Thomas Frayne 04/16/04 03:54:42 PM EDT

As I understand it, end users can be sued for patent infringement, but not for copyright infringement (unless the end users distribute or make extra copies or modifications. Running and backing up a validly received copy is fair use that does not requrire permission from the copyright owner. For FOSS programs, you don't have to make extra copies, just get them from your distributor).

Learning the existence of a copyright that affects a program that you have validly received does not affect your rights to fair use of that program: you may continue to run and backup the program, but you have no right to modify, make extra copies, or distribute the program without permission of the copyright owner.

An end user who violates a patent he or she knows about may have to pay damages to the patent owner, but does not breach the GPL as long has he or she does not try to distribute the tainted product. A user, even a commercial distributor, who unknowingly violates a patent is not liable for damages, but has to stop using the patent when informed of the violation.

The real problem is for a commercial distributor who knows that the product to be distributed is tainted by a patent whose license conflicts with the GPL. Distributing without the permission of the patent owners is a criminal patent violation; distributing without the permission of the copyright owners is a criminal copyright violation.

The GPL does not give permission to distribute unless you can give recepients the same rights you have. If you cannot get the patent owner to agree to this, and you cannot get the copyright owners to agree to give permissions beyond those given by the GPL, you are stuck: you cannot legally distribute the product as is. The only ways left to proceed are to rework the product so that it no longer uses the patent, or to fight the patent in court.

In summary, the end user that does nothing but run and backup validly received programs needs insurance only for the legal costs of fighting frivolous copyright suits and patent suits for unknown patents used, and the business costs of mitigating a violation yet to be discovered. The end user would not be able to get insurance for violating known patents, since this would be a deliberate criminal offense. The main difference for a commercial distributor would be the much higher business costs for mitigating a violation yet to be discovered, since distribution and use would have to be halted until the patent or copyright could be bypassed by challenging it in court or removing its use.

David Blomstrom 03/27/04 06:11:59 AM EST

Hmmmmm... Anti-Microsoft insurance??? It does have a nice ring to it, and it's vastly preferable to giving insurance to Microsoft's subsidiary, SCO. But, frankly, I think it's still giving in to terrorisim.

Let me address the teaser that precedes this article:

"How did we get to the point where Linux users would need to buy insurance to protect themselves while doing something as simple and natural as sharing free software? Because we just got onto the plaintiff lawyers' radar screen: big money is now involved. The Linux community needs a collective, vendor-neutral defense, says Daniel Egger."

I have another answer: The open source community isn't politically active. Hell, it's scarcely politically aware.

Do they really think Linux is invincible? I mean, Linux MIGHT steamroll Microsoft ten years from now. But think about Bill Gates' friends and business partners, including George W. Bush. Think about the control China's government exerts over Internet access. What if Microsoft passes Google in the search engine industry? What if it acquires Google?

Here's a scary thought: Suppose we suffer another major terrorist attack, and the federal government declares martial law and begins policing the Internet with the help of Microsoft? It may sound far-fetched, but it's conceivable.

Even if Linux is unstoppable, complacency could greatly retard our deliverance from Microsoft. I don't want to wait ten more years to be rid of Microshaft!

But is there a choice? I've tried to network with open source "activists" for some time now, and I've just about given up. Most tell me they're just looking for a better operating system. Many insist they actually like Bill Gates. (They remind me of John Kerry sucking up to George Bush.) Some have attacked ME for attacking Bill Gates. Frankly, I think the open source community has been heavily infiltrated by Microsoft operatives.

If the best defense is a good offense, then the open source community needs to get off its collective butt and start sticking it to Bill Gates. If you need someone to network with, check out yours truly.

I announced my campaign for public office on March 24 - the same day the European Union lowered the boom on Microsoft. (The European Union and Spain have done more for America than the Democrats have.) I also launched a new anti-Microsoft website, at http://www.freedomware.us/

By the way, I'm attacking Bill Gates in his own back yard - I live in Seattle and worked for the Seattle School District before it became another Microsoft subsidiary.

I've run for public office three times before, and the Seattle media have walked a fine line between insulting and ignoring me - and they don't even publicize me through insults until just a few weeks before the election.

This time, I blew the Seattle media off and sent a press release to foreign media and high-tech publications. (Unfortunately, I think I forgot to include LinuxWorld; sorry!) I was delighted to get a plug from South Africa - http://www.itweb.co.za/sections/business/2004/0403251117.asp?O=FPQQ

A South African high-tech publication may seem nearly as insignificant as I am, but this is deeply symbolic. What if several dozen open source fans declared their candidacy for public office and made open source software and Microsoft campaign issues? Suppose foreign media gave them the publicity America's corporate media deny activists?

What if open source buffs and political activists began actively promoting open source software programs, persuading people to use Mozilla Firefox instead of Internet Explorer?

It may sound goofy, but it's also very simple - and it's free. If open source fans don't think highly enough of "freedomware" to actively promote it, then why should anyone else use it? Bill Gates fights for his products, and he gets results. As long as the open source community remains mired in complacency, the Linux revolution they dream of will remain a distant possibility.

I say we turn it into a FACT, beginning with Campaign 2004. See my campaign website at http://www.edrevolt.org/ Better yet, give me the names of some more open source candidates I can network with.

David Blomstrom
david_blomstromATyahoo.com (Replace AT with @)

Clement Cherlin 03/21/04 11:57:51 PM EST

Quote: "...AT&T's secret 1993 contractual agreement to drop its copyright lawsuit against BSD and not to sue users of BSD Linux will also remain binding on the successors in interest that are each defending AT&T's rights..."

"BSD Linux"?

walterbyrd 03/21/04 11:39:10 PM EST

Just how risky is it to use OSS? IBM, Chrystler, AutoZone, were not sued just for using OSS. Has anybody every been sued just for using OSS? I didn't think so. Is there any accepted legal theory where an end user would liable for somebody else's copyright violations? I didn't think so.

This end-user liability [email protected] is just msft FUD, and anybody who can't see that, is an idiot. Scox and some unethical "insurance companies" are just trying to profit from msft's little scam.

Several months ago, I openly invited scox to sue me for using Linux. Scox declined. Scox also declined to send my an invoice using Linux. And, I am far from a major corporation, I don't even have a lawyer, and I don't need one. If scox ever sued me, I'd simply state that scox has no case - and scox would lose. Scox knows this, which is why scox will not sue somebody for just using Linux.

efp 03/21/04 02:47:32 PM EST

It sounds a bit like the argument that legal scholars make in favour of "general average" in the shipping industry. It would make sense, but only if we omit the bigger picture.

The legal battles are just the continuation by other means of the technical and commercial battles that companies like SCO feel they are losing. Does it matter that users are not covered? Does it, in fact, matter who wins the legal battle?

No, it doesn't. The law really doesn't matter. What matters is who gets to make the law. Yes, my dear Von Clausewitz, the political battle will be nothing more than the continuation of the legal battle.

And dependent on the sheer determination on our side and its growing head counts, we will happily call every man no younger than eighteen and no older than sixty-five, to engage in the continuation by other means, of the political battle.

linonut 03/19/04 10:24:33 PM EST

It does sound like an insurance scam to me. I don't understand how a user can be liable for copyright violations that they don't know about and when they haven't copied anything, and I certainly don't understand how any user can be liable for patent violations. What, your average user now has to do a patent search before using a product?!! Patently ridiculous!

Better straighten him out, PJ.

Chuck S. 03/18/04 02:00:32 AM EST

Looks like another litigation and insurance company scam to me.

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