Open Source vs. Proprietary Software: A Legal Guide to IP

Making the right software choice is a foundational decision that impacts a company’s budget, operations, and capacity for innovation. A critical, yet often overlooked, aspect of this decision is the complex web of intellectual property (IP) rights associated with each model. As a law firm dedicated to protecting our clients’ intellectual property, Emerson Thomson Bennett has seen firsthand how a lack of understanding in this area can lead to significant legal and financial consequences.

The two dominant software models — proprietary and open-source — operate under fundamentally different IP philosophies. Understanding these differences is not just a technical issue; it is a crucial business strategy. ETB Law will detail the IP implications of each model to help you make informed decisions that protect your company’s valuable assets.

The Proprietary Software Model: A Fortress of IP Rights

Proprietary software, also called closed-source software, is defined by its strong IP protections. A single entity — be it an individual developer or a corporation — owns the software outright. The source code, which contains the core instructions of the program, is maintained as a trade secret and is not accessible to the public or the end-user.

Legal Considerations for Proprietary Software

• Ownership and Control: The developer retains full copyright and, where applicable, patent rights. This exclusive ownership grants them complete control over the software’s use, modification, and distribution. Any attempt to reverse-engineer, copy, or alter the source code is a direct infringement of these rights.
• The End-User License Agreement (EULA): When you “buy” proprietary software, you are not purchasing the software itself but a license to use it under specific conditions. The EULA is a legally binding contract that dictates these terms. It often restricts use to a certain number of devices, prohibits redistribution, and forbids any form of modification. Violating the EULA can result in the termination of your license and potential legal action.
• Usage Rights: Your rights as a user are strictly limited to what the EULA permits. You can operate the software for its intended function, but have no legal right to inspect, change, or share its underlying code.

Well-known examples like the Microsoft Windows operating system, Adobe’s Creative Suite, and Apple’s macOS exemplify this model. Their value is intrinsically tied to their robust and vigorously defended IP framework.

Legal Benefits and Risks

Benefits:

• Clear Liability: A single vendor is legally and financially accountable for the software’s performance, security, and updates.
• Dedicated Support: Commercial vendors are contractually obligated to provide support, creating clear channels for resolving issues.
• Perceived Security: Many users assume closed-source software is more secure because the code is not publicly accessible.

Risks:

• Vendor Lock-In: Businesses can become heavily dependent on a single vendor. If that vendor changes its terms, increases prices, or discontinues the product, migrating can be legally complex and operationally disruptive.
• High Costs: Licensing fees represent a significant and ongoing operational expense, especially for large-scale deployments.
• Inflexibility: Without access to the source code, you cannot adapt the software to meet specific operational needs, limiting your ability to innovate.

The Open-Source Software Model: Collaboration Under License

Open-source software (OSS) presents a stark contrast. Its source code is intentionally made public, inviting anyone to view, use, modify, and distribute it. This model is built on principles of transparency, community collaboration, and shared innovation. However, “open” does not mean “free of rules.” OSS is governed by carefully constructed legal licenses.

Legal Considerations for Open-Source Software

• Copyright and Licensing: The original creator retains the copyright but chooses to release the code under an open-source license. This license grants broad permissions that would otherwise be reserved by the copyright holder. The specific terms of that license are paramount.
• Types of Licenses: Open-source licenses generally fall into two categories:
  • Permissive Licenses (e.g., MIT, Apache 2.0): These grant extensive freedom. You can use, modify, and distribute the code, even as part of a proprietary, closed-source product, as long as you provide attribution to the original authors.
  • Copyleft Licenses (e.g., GNU General Public License – GPL): These licenses are more restrictive. They require that any derivative works (software that includes or is modified from the original OSS) must also be released under the same copyleft license. This “viral” nature can compel you to release your own proprietary source code if not handled correctly.
• Usage Rights: Users have the four essential freedoms: to run the program for any purpose, to study its source code, to modify it, and to redistribute original or modified versions.

Prominent examples of OSS include the Linux operating system, the Apache HTTP Server, and the WordPress platform. These projects thrive on community contributions, all managed within a specific legal licensing framework.

Legal Benefits and Risks

Benefits:

• Cost Efficiency: The absence of licensing fees can dramatically reduce software acquisition costs.
• Unmatched Flexibility: Full access to the source code provides the freedom to customize the software to your exact specifications, free from vendor constraints.
• IP Transparency: The open nature of the code allows for thorough security and compliance audits, fostering greater trust.

Risks:

• License Compliance Complexity: The variety of OSS licenses creates a significant legal risk. Inadvertently using a component with a strong copyleft license (like the GPL) in your proprietary software could legally obligate you to release your product’s source code to the public.
• No Centralized Liability: There is generally no single entity to hold accountable for bugs, security flaws, or patent infringement claims. Your business assumes more of the legal risk.
• Warranty and Indemnification: Unlike proprietary software, OSS typically comes with no warranty or protection from IP infringement claims.

Making the Legally Sound Choice for Your Business

Selecting the right software model requires a strategic evaluation of your company’s resources, risk tolerance, and long-term goals.

Consider Proprietary Software if:

• Your business requires a turnkey solution with minimal technical overhead.
• You need guaranteed professional support and clear vendor accountability.
• Your industry demands certifications or compliance standards more easily met by a single commercial product.

Consider Open-Source Software if:

• Cost control is a primary business driver.
• Your organization possesses the technical experience to manage, customize, and secure the software.
• Avoiding vendor lock-in and maintaining full control over your technology stack is a strategic priority.

Many businesses now employ a hybrid strategy, using proprietary systems for certain functions while building on open-source platforms for others. This approach can offer the best of both worlds but also heightens the need for diligent IP management.

How Emerson Thomson Bennett Can Help

The line between open-source and proprietary software is a landscape of legal complexities. A misstep can expose your company to litigation, jeopardize your trade secrets, and damage your competitive advantage.

At Emerson Thomson Bennett, our attorneys are skilled in intellectual property law for the technology sector. We provide critical legal guidance to help you navigate these challenges:

• For Proprietary Software Users: We conduct thorough reviews of EULAs and vendor contracts to ensure the terms align with your business interests and do not expose you to undue risk.
• For Open-Source Software Users: We perform comprehensive IP audits to identify all open-source components within your systems, analyze their license obligations, and develop compliance strategies to protect your proprietary code.
• For Software Developers: We help you choose and implement the right licensing model — whether proprietary or open-source — to protect your IP while achieving your business objectives.

By partnering with experienced IP counsel, you can leverage the power of any software model with confidence, ensuring your intellectual property remains secure and your business stays on a firm legal footing. Contact us today to schedule a consultation.