Open-source software (OSS), by its nature, is sometimes overlooked as part of technology transactions. OSS is often a key aspect of a business’s software ecosystem, whether it is used in internal systems or forms a fundamental part of solutions that are sold to customers or used to provide services to customers; however, OSS often sits in the background, as a foundation of a software solution, and can therefore go unconsidered by those not familiar with its uses, benefits, and risks.
The State of Open Source Report 2025, released by the Open Source Initiative, states that 96% of organizations reported either increasing or maintaining their use of OSS in the past year. OSS therefore must be a priority consideration in tech transactions. This blog looks at the challenges of OSS in relation to technology transactions.
What Is OSS?
OSS is publicly available software source code that can be used, modified, developed, and distributed by anyone. It is developed by individuals and foundations to be used for the general benefit of society—for example, the early internet was created using OSS.
Although available on a public basis, OSS is still subject to licenses that users must adhere to. OSS licenses generally come in two forms:
- Permissive: These licenses permit the development of the OSS and onward licensing of such developments on license terms decided by the developer. This enables businesses to use OSS to create proprietary software solutions. Examples of permissive OSS licenses are Apache 2.0 and BS.
- Restrictive/Copyleft: These licenses require that any developments of the OSS must be subject to the original OSS license, and therefore all developments must be open source themselves. The rationale for this is to ensure that such OSS remains open source and a benefit to the general public rather than being used for commercial or proprietary purposes. An example of a copyleft OSS license is the GNU General Public License.
How Is OSS Used?
There are many uses for OSS, including training student software developers/programmers and community collaboration to progress new technologies.
A significant use of OSS is by businesses using it as the foundation of their internal and commercial software systems and solutions—which is the focus of this blog.
Benefits of OSS
OSS is often used to increase the speed and efficiency of software development. Developers can use proven OSS as the starting point for their software development, which can save significant time and resources and reduce the risk of fully developing software from scratch.
Organizations also use OSS due to potential security and stability benefits. As many developers are reviewing and updating the OSS, security and stability issues may be detected much more quickly than within an organization’s team, meaning that patches can be readily applied.
Risks of OSS
Although there are a number of benefits of OSS, there are risks to its use.
Developers will need to ensure that they fully understand the OSS and how it can be developed and used by them. As they did not develop the OSS, they are reliant on the skills of the original developers and those of the community that have subsequently developed the OSS.
Use of OSS that is licensed on a restrictive/copyleft basis poses a significant risk to businesses that are using the OSS to create software that will be onward sold to customers or that will be used by the business to provide services to customers. As all derivative works of the OSS must also be licensed on an open-source basis, proprietary rights in software created using such OSS will be lost and these issues could also be passed on to customers. As such, great care should be taken if copyleft OSS is to be used.
Key Considerations for Tech Transactions
Software Licensing
Businesses licensing software should ensure they understand whether OSS has been used to create such software and on what basis it is licensed. If there is any copyleft OSS in the software solution, this may affect the business’ use of the software, whether that be for internal or commercial use. As such, understanding any restrictions beyond what may be expressly stated in the license agreement is key.
Obtaining clear details about OSS use should form a key step in the procurement process for any software licenses. Any issues should be addressed in the contract as part of negotiations.
Software Acquisition
Whether acquiring a specific software solution or a business reliant of software, OSS should be considered as a key part of the due diligence process.
The acquirer should seek full disclosure regarding OSS use in respect of both internal software and any proprietary commercial software. For added protection, software scanning can be undertaken by third party specialist providers that provides a report as to any OSS contained within the specified software.
The use of copyleft OSS software in proprietary commercial software can materially diminish or event completely remove the value of that software. If the acquisition is of such software or the main value of the business is based on such software, this is likely to be a significant issue for that transaction.
Service Agreements
OSS considerations in respect of service agreements are not as overt as those in software licensing or acquisitions but they do exist, in particular where the services involve a significant shift of responsibility to the service provider, such as an outsourcing arrangement.
If the service provider is creating deliverables for the customer, they are likely to be using proprietary or third party software to do this, which may be OSS or may include OSS. If such OSS is licensed on a copyleft basis, such deliverables could themselves then be subject to the OSS license, which could affect the customer’s receipt and use of the deliverables.
As such, service agreements should address open-source usage. This may include the restriction of use of OSS altogether or just on a copyleft basis, or at least full disclose of all OSS use and potentially rights to reject inappropriate use.