Yankee Group Sees Open-Source Indemnification Nightmare

Its new report says corporate Linux or open-source users lacking indemnification will have to expend their own time, money and resources fighting legal action. But other analysts beg to differ.

According to a recent report by The Yankee Group, indemnification is becoming open sources nightmare and Microsofts blessing. However, other analysts and open-source companies dont see it that way.

"A corporate Linux or open-source user that lacks indemnification and product warranty will expend its own time, money and resources fighting legal action," said Laura DiDio, senior analyst for application infrastructure and software platforms at The Yankee Group.

"In addition to the potential monetary costs associated with protracted litigation, a corporation risks incalculable loss to its reputation, which could deter existing and prospective customers from signing on new business."

That said, Dan Kusnetzky, IDCs program vice president of system software for the enterprise computing group, said he doesnt see much corporate concern over indemnification and related issues. "Our surveys dont indicate an increased level of concern in this area," he said.

Still, the Yankee Group is advising companies to review the T&Cs (terms and conditions) of each of their individual licensing contracts with legal counsel to determine whether they have adequate indemnification coverage.

DiDio said that in the absence of indemnification or specific indemnification provisions, corporations could be the target of an intellectual property lawsuit that they would be forced to defend using their own money and resources.

In some cases, such as free open-source software, beta test software, steeply discounted software or software produced by nonprofits, the vendor may not realize enough of a profit to justify the cost of indemnifying its customers, DiDio said.

"Open-source software is sold as is, requiring the customer to assume the liability risk. Some contracts, such as Novells SuSE Linux enterprise offering, place a liability cap of $1.5 million per customer on the amount of indemnification," DiDio said.

Novell Inc. feels that its doing more then enough to protect its customers.

"Novell believes open-source software poses no greater risk of intellectual property infringement than does closed-source software, something this Yankee press release certainly doesnt convey," said Bruce Lowry, public relations director at Novell.

"Theres been a lot of noise in the market around this issue of late, fanned by Microsoft and actions like this from the Yankee Group, but were not aware of any patent claim being filed against an open-source offering," Lowry said. "We believe technology choices should be driven by value, technical features, security and services, not by intellectual property concerns."

In contrast, "Microsoft, which in the past has been criticized for the cost of its Volume Licensing Agreements when compared with free Linux, provides some of the most specific and comprehensive indemnification provision in the industry," DiDio said.

/zimages/6/28571.gifClick here to read about why some people think Microsoft is trying to assert IP (intellectual property) rights over the Internet.

Others disagree with this assessment. Dan Ravicher, an attorney and executive director of PUBPAT (the Public Patent Foundation), does agree "that dealing with potential IP infringement claims is an issue for corporations to be mindful of and to include in their cost analysis of various software options. But the phrase that is the fuzzy meat in this statement is determine if they have adequate indemnification coverage."

Thats because it "seems to imply that only Microsofts blanket and total coverage can be adequate for all companies of all sizes with respect to all software used," Ravicher said. "That fails to recognize that adequate indemnification coverage can vary depending upon those factors and others."

"Also, what Microsoft is now publicizing as a new offering is really not new," he added.

"Prior to the announcement of blanket and total indemnification, if any user of Microsofts software was sued for patent infringement, the incentives would preclude Microsoft from abstaining and leaving their customer on their own, because if the customer lost, that would set precedent against the same Microsoft software used by anyone."

Therefore, "in order to prevent the software from being stopped, Microsoft would—even without having given an indemnification—want to be involved with any case where its software is accused of infringement in order to protect, not its customer per se, but its software," Ravicher said.

"And of course, Microsoft doesnt do all this for free. Baked into the cost of a license is the cost to Microsoft of handling this risk of having to defend its users from IP claims. So, with Microsoft software, a company is forced to buy their full protection, which under some circumstances may be too much and too expensive," Ravicher said.

Hewlett-Packard Co.s worldwide director of Linux Marketing, Efrain Rovira, said HP adds its own indemnification on top of Microsofts. "As one of Microsofts key OEM partners, we indemnify Microsoft and our joint customers from IP and copyright infringement lawsuits, enabling Microsoft to pass that indemnification onto our shared users."

In addition, "HP is the number one provider of Red Hat and SuSE Linux distributions and solutions, and we offer the highest level of indemnification possible to our Linux customers purchasing our products," Rovira said.

"HP has placed no limits on legal costs or caps for damages that customers may incur for SCO-related litigation. This is a risk we have assumed on behalf of our customers, and numerous companies have signed up for this protection at no additional cost since we introduced it last year. We feel this offers great value to our customers that want to confidently deploy Linux solutions," Rovira said.

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