IMPACT OF OPEN-SOURCE LICENSES ON STARTUP CONTRACTS

Abstract

In the world of open-source software, every line of code has its own set of rules and regulations. Whether there is a person who has an innovative start-up which has the capability to build the next big app or a consummate enterprise with an amalgamation of third-party solutions, both of them understands that the distinction of open-source licenses is of supreme importance. In the current times as, the new opportunities are emerging open-source software tools helps the developers of the start-up to support their project and also find new solutions for the need’s day by day. Even the modern cloud systems and mobile computing technologies are largely based on solutions which contain open-source code today. Open-source software are also being taken up by policymakers and lawmakers so that they could succeed in different degrees. This is a perfect example how everything digital has been taken over by the open-source software. This paper investigates the integration of opensource licenses into the contractual agreements on start-ups and their legal implications. The paper also delves into the purposes of the popular licenses and the practicalities that start-ups commonly overlook.

Keywords: Start-ups, Software Licensing, Open-source licenses, copyleft, general public licenses, permissive licenses, Open-source Software, Legal implications, Ethical factors, Proprietary software.

Introduction

Start-ups are companies that are in the initial stages of operation, start-ups are basically founded by two or more individuals¹. Individuals who develop a start-up is known as entrepreneurs. Entrepreneurs develop their companies to cater the demands of the markets with their products and services. The revenue of start-ups in their initial stages are very limited and costs invested are very high. There are many advantages associated with working in start-ups in compared to business as they are more flexible in nature, higher chance of new opportunities, there is communal experience in the workplace and also have better benefits. There are also disadvantages like more work load, need for more funds for the start-ups, the chance of failure

is high and the business market are competitive in nature. Examples of successful start-ups that continues to exist today also are Amazon and eBay.

From the beginning of the 21^st century software industry is one of the fastest growing industries in the world because of the emergence of innovative ideas, economic effectiveness, new opportunities, lesser cost and limitations. Even after all these advantages this industry has its own setbacks i.e., piracy of software which includes the copying, stealing and torrenting of the developed software within a very less amount of time at low cost and most of the time freely. The only solution to the said problem is the legal way of it that is to protect one’s developed software using the Software licensing. Software license provides legal protections² which is linked to licensed usage of the developed software. Failure to abide to the given provisions or the terms and conditions of the software licensing rules will include or initiate criminal penalties dealing with registered intellectual property (IP) and proprietary content.

Types of software licenses

Software licenses in India can be comprehensively named proprietary licenses, free software licenses, and open-source licenses.

1. Proprietary software license is a computer software that is authorized and governed by the copyright proprietor under certain terms and conditions. It is prohibitive and protective in nature in terms of understanding the permits wherein the code which was composed in the beginning by the software developers are not primarily accessible to the public users. They can only utilize the developed product and they can’t modify it or redistribute it. This product is also called the closed source software and to ensure their innovation are secured, the developing organizations opt for this type of prohibitive license.

• The second type is Free software license it has lesser limitations in compared to the propriety software. The software can be utilized by the users to modify the product and redistribute it with very less restrictions which in somehow or other cases will have restrictions from the copyright law. The developers also include a free programming

permit of the developed product when they grant the access to the users for the benefit of modifying and redistributing the copyrighted or licensed work.

Open-source licensing is mainly a legal framework that governs the modification, use and distribution of open-source software. It is very important to ensure that people who develop the source have the freedom to modify, share and access the software code without any restrictions thus open-source licensing plays a major role in promotion of innovation, transparency and collaboration in the communities which mainly deals with development of software. It is built in a collaborative manner by various teams and individuals. The main idea of the open-source software is that anyone can develop a software by using the source code that is available in the software. Open-source licenses help the developers to contribute towards improvements in the projects, create software solutions and build on the current developing projects by making the source code widely available for the public³. There are different types of open-source licenses, each of them has its own terms and conditions. Common examples of license include the General Public License (GPL) also known as copyleft licenses which demands any derivative works be released under the terms of the same license, MIT License⁴ also known as permissive license which allows the usage of codes pertaining to software in commercial and non-commercial projects with lesser restraints. It is also one of the shortest and the simplest open-source license and the next is Apache License, which permits the distribution of software code under specific terms and conditions.

This research adopts a research design that is doctrinal in nature. This study involves an in- depth analysis of secondary resources such as websites, articles, blogs and journals and has thoroughly relied upon research papers related to the topic, the reference of which have been included for your perusal.

Review of Literature

• Benefits, challenges and implications of open-source software for health tech start- ups; An Empirical Study by Niranya Tripathi and Noman Ahmed (2024)⁵

The authors, in this article, present a detailed and overarching analysis of how open source benefits the health care industry and how new startup opportunities provide advanced solutions to numerous concerns related to the health care industry. And how it gives them an advantage towards accessing source codes and opportunities for innovation. And also, the findings of their research showed that the health startups benefit from cost efficiency as open- source software tools provide community support, reshape code management and development.

• Start-ups and Open-Source Licensing: Balancing Open Source and Proprietary Software in Tech Start-ups by Ms. Subhiksha Damodaran (2023)⁶

The author, in this article, presents a detailed analysis of how open-source licensing benefits start-ups and how innovation and strategic skills contribute towards financial benefits and cooperative harmony. And how it creates dynamic work environment in the start-ups by encouraging collaboration in the global level, by helping in the acceleration of innovations, and by encouraging a collective problem-solving spirit by promoting transparency and a sense of community.

• Start-ups and the ethical use of Open-Source Software by Ms. Subhiksha Damodaran (2023)⁷

The author, in this article, present a detailed analysis of how open-source have emerged in the dynamic world as a most prevalent toolset offering cost effective and rapidly evolving solutions to the start-ups. And the factors that influence the ethical use of open-source software include compliance with licensing agreements, involving an ethical community, resolving the ethical issues that is prevalent and also taking care of its privacy and security.

• Contributing to Growth? The Role of Open- Source Software for Global Start-ups by Nataliya Langobard, Wright Frank and Nagle Shane Greenstein (2024)⁸

The authors, in this article, present a detailed and overarching analysis of how open-source helps the emerging startups to develop. And how it has evolved in the modern era as an essential for new technologies like Artificial intelligence and big data analytics. During their research they found how Open-Source Software has helped in drastically reducing the costs for coders to gain access to routine code across a range of software applications, and it enables the user to access without the hassle to negotiate over intellectual property and other laws.

• Viewing Open-Source Start-ups Through a Licensing and IP Lens by Joseph Ruscio (2023)⁹

The author, in this article, present a detailed analysis of how technical team use open-source software tools to build new products every day¹⁰. And how unique challenges arises during the comparison of open sources with proprietary projects. And there is also an elaboration about how changes in the intellectual property laws and licensing laws effect the open-source

startups. And lawmakers and policymakers in the west are trying to understand the functioning of open-source software as to succeed in different degrees.

Things to consider by the start-up developers before choosing licenses:

Provisions of Software Licensing Agreements                                                                                              

• The provision of remedy clause provides remedies to the aggrieved party in terms of breach of contract.
• The provision of breach of contract states that the licensor can revoke the contract in terms of violation of conditions.
• The provision of cessation of use states the time when the agreement will be terminated.
• The provision of limitation of liability states that the user has approved the software in the initial stage and the user gives no assurance that the program will be used or employed.

Legal frameworks which deal with the licensing of software

• Indian Contract Act 1872:
• Software contracts are also regulated by the Indian contract act as a rule of common law. It specifies that the contract can be of license or sale in nature. The Sales of goods act of 1930 will also be relevant when the computer software is considered as a ‘good’ and can have importance in the creation and implementation of the contracts.
• Trade Secret law:
• Trade secret in the developed software would include plans, ideas and structures. They can be utilized for the functional purpose of the software. It relies upon the thoughts and its implementation. Software which are dispersed uniquely as an item code can be kept secured as a trade secret if the code specified is kept classified.
• Copyright Act 1957:
• Computer software which are developed should be original for the copyright security. To determine that adequate time and expertise will be looked into to determine its originality. Section 19(5) of the Copyright Act 1957 states that when an assignment period is not specified it shall be considered to be five years from the date of license. The copyright act delivers protection and a computer software is given this particular protection when it occurs in a technological impact and is not a computer program per se.

Combining open-source software into start-up operations can deliver a lot of opportunities.

First of all, open-source software is constantly considered free to use, which can critically reduce the costs for start-ups. And open-source software is naturally developed with the joint efforts of the developer’s community, which contributes towards innovation and updating in a quick manner. The outcome of this will be improved implementations for Start-ups, security and the credibility.¹³ In addition, open-source software is flexible and offers customization options, allowing the start-ups to modify the software to their needs and requirements and makes it simple for start-ups to incorporate different technologies, programs and systems.

LEGAL IMPLICATIONS:

By understanding the legal framework of open-source licensing models, complying with the terms and conditions given in it, following the best practices and understanding the enforcement of the open-source licenses the developers of the start-up and its organizations can avoid legal actions and disputes between the parties.

When we use open-source software, start-ups need to take a look at the legal implications that is associated with the open-source licenses¹⁴. Open-source licenses come with specific obligations and restrictions that start-ups must stick to, such as providing acknowledgment to the original authors, issuing modifications under the same license, and making the source code available to users. And if we fail to adhere to these requirements it can result in legal consequences, such as lawsuits or fines. And it is a major requirement for start-ups to establish procedures and policies to control open-source software usage and its conformity.

Even the most unconstrained open-source licenses impose least minimal obligation which ensures that the consideration that comes in the legal sense is exchanged and a lawful contract is created successfully through the existing license. The MIT License which allows the usage of codes pertaining to software in commercial and non-commercial projects with lesser restraints imposes the below given restriction on the licensees:

‘The above copyright notice and this permission notice shall be included in all copies or substantial portions of the Software”¹⁵

While this constraint is not formidable, but it is real and a failure to abide by it constitutes a breach of the contract. The General Public Licence¹⁶, the Apache, and all of the other open source and free software licenses as described impose adequate obligations so that parties don’t fail in the contracts due to the lack of consideration. The licensor or the developer grants the benefit of the lawful contract approved and the right to use the licensed software to which the licensee or the user agrees to lawful restrictions which are enunciated in the license.

In India, the consequence of breach of software licenses would be dealt according to the agreements or the common laws. The software licensing agreements are considered same as the common agreements as they have all the major provisions of the common agreements and as it is also governed by the Indian Contract Law 1872 in accordance with the agreements given. Other than Contract Act, the contingency of the Trade Secret law, Copyright Act and Information technology laws can be used depending upon the conditions and needs of the licensing agreements.

Major Pitfalls in this Software: There are many instances of information technology contracts where open-source software project itself as a major pillar. Due to this various user insist that there should be some clause on the warranty of the software which ensures open- source software is not included with the actual product that is available to the users as this could lead towards potential risks that is hidden in the software. But practically it is not possible as there is open-source software available to the users which are free of potentially harmful risks and they can opt for that for their project model or the start-ups. But it is not impossible also so to be cautious, the user should ask the service provider or the owner of software to provide the details of the software that are used so that if any risks are involved during the course of employment of the software so that the user can take necessary precautions. The main demand of the open-source license is that the developer of the specific code should be acknowledged, and in some cases the agreements fail to recognize this which as a result contributes towards legal actions. Thus, it is very important to include the relevant

terms and conditions in the agreements so that the developers or original licensors can terminate the contract or sue the other parties when they fail to follow the conditions.

 BY

LAKSHMI CHANDANA

2^nd YEAR

ARMY INSTITUTE OF LAW, MOHALI