Legal Implications of Open-Source Software

Abstract:     
This article examines some legal and economic aspects of software produced under licenses that provide for distribution of source code and allow downstream users to copy, modify, and redistribute code. The article focuses in particular on the General Public License (GPL), which grants permission to engage in such activities on the condition that downstream users make their own works available on the same terms on which they received the code. Production under this model is informal compared to production in conventional firms. Persons who work on projects utilizing these licenses do not receive wages from those who initiate or maintain the projects. This model therefore poses questions about traditional assumptions of agent behavior that characterize the Theory of the Firm literature.

This article first analyzes the agency question and contends that classifying software by license terms provides an incomplete understanding of this form of production. The social structures necessary to sustain production vary depending upon the complexity, and therefore cost, of different projects; the market position of different projects is relevant as well. Production of simple, low-cost projects may require little if any coordination and therefore little if any hierarchy. Production of complex projects, such as the GNU/Linux operating system, require coordination and are in fact characterized by hierarchy. The article discusses the social factors that have thus far supported these hierarchies. The article also analyzes the reciprocal licensing model of the GPL, and discusses various issues relevant to its enforceability under existing copyright and contract law.

Working Paper Series