Managing Open Source Software M&A Risks

"Open source risks have become a significant diligence issue in many mergers and acquisitions. Open source issues need to be included on today's due diligence lists. The treatment of open source at a target company may affect representations, warranties, indemnification, covenants and other contract provisions. Open source issues may affect the risk assessment and structure of the deal. These issues are likely to become more important in mergers and acquisitions in coming years as the presence of open source software in global businesses continues to grow...

Fundamentally, open source issues impact a merger or acquisition transaction because buyers need to know what rights and liabilities are being transferred. Thus, if open source code is disclosed during due diligence, the buyer will need to determine the effect open source code has on the risks being evaluated by the buyer in the proposed transaction. For example, even though open source software being used by a target was only modified for internal use, it is possible in an asset transfer transaction that the open source derivative work rules may apply to the transfer of software assets containing open source code. Below are some questions to consider in merger and acquisition transactions:

What seller products are affected by the open source code?

How is the open source code incorporated in seller's products?

What open source licenses apply to the open source code related to Seller's products?

Will the open source code trigger the derivative work open source licensing requirements?

May the open source code be replaced with closed proprietary code if necessary?

What is the value of the product or products affected by open source to the overall deal?

Do the affected products represent a substantial source of revenue to the company?

Are the affected products part of an integrated software solution or suite of products?

Are the affected products used solely for the internal operations of the company?...

From this DLA Piper Rudnick article from Mondaq that also includes an excellent summary of what constitutes free and open source software.