Prithvi Tanwar, an associate at Foley who does a lot work with us at the EEC, recently had occasion to consider the General Public License in the context of start-ups.  This resulted in the following comments which I thought would make a useful post.

A start-up wants to develop its online application using scripts licensed under the GNU General Public License (“GPL”). What are the potential ramifications? Any modifications and works derived from a script or product that is licensed under the GPL must themselves be licensed under the terms of the GPL when distributed to third parties (they must be made available in source code, at no additional cost, to anyone to whom you distribute the modifications or derivative works).

There are two questions a start-up building software derived from scripts under the GPL needs to ask: (i) Do we plan to distribute the software? and, (ii) How much of the software do we plan to develop using the GPL scripts? If your business plan requires the sale/distribution of software to customers - move to question two. If however, you plan on providing a service using your web application, where all your software sits and runs on your servers and users access these servers through their computers (be it desktops or smart phones) you might not trigger the distribution requirement under the GPL license. If you are distributing software, the next step of the analysis is to determine whether your product “as a whole” is a derivation of the script under the GPL. If this is the case you might very well have to disclose the source code for your entire product and not just the portion you developed by modifying the GPL script. Not the route you want to take if you view your product as proprietary. Unfortunately, the question of what constitutes “as a whole” is difficult and requires a case-by-case analysis. This might be a good time to call your IP Counsel to get an idea of how much risk you plan on taking using open source software in your development process.

Your choice of a software distribution vs. service provider model will also affect investment and exit events in the future. Using GPL scripts in the development of your website application will raise concerns for potential investors and buyers. If a potential acquirer or investor views your product as the main asset, to be distributed and marketed as a closed-source proprietary product, they might balk at your use of GPL scripts. If however, the buyer or investor view you as a services company where your main asset is your customer base and market presence, the use of GPL scripts might not be a problem. Executing a software development process in tandem with your business plan and still having room for flexibility is a difficult process, but is key to avoid boxing yourself into a corner over the long run.