Open source insurance for business

In 2003, Linksys and its parent company Cisco found out they were in violation of the terms of the GNU General Public License because of some embedded open source software used in the company’s WRT54G wireless access point. If Cisco had known about the violation ahead of time, it may have been able to avoid much of the expense and heartache of the subsequent investigation conducted by lawyers with the Free Software Foundation. A new type of insurance available to companies whose products may include snippets of free software code promises to expose potential problems before its too late.

Kiln plc underwriters and Miller Insurance Services Limited, a UK-based insurance broker, today announced the availability of Open Source Compliance Insurance. It is designed to cover the “specialized risks faces by enterprises that include or rely upon elements of Linux and other open source software in their commercial products or internal IT infrastructure,” according to the announcement, which states that “more than 30 legal claims involving infringement of open source licenses have been brought against corporations in the last two years,” and that in each case, plaintiffs have prevailed in enforcing their rights to restrict the use of their code.

Kiln and Miller are partnering with Open Source Risk Management, which will evaluate companies looking to purchase the insurance. Daniel Egger, CEO of OSRM, says that businesses about to enter into big acquisition deals are the most likely customers. “If you’re a software company or a device company that uses software in your product and you’re selling the company, most all technology deals have a clause that can be a huge headache to the seller.” That clause seeks to indemnify the buyer by making the seller warranty that there is no infringement of any open source licenses or copyrights. “It’s hard to prove that in a hurry,” Egger says. But that’s where OSRM comes in. “We review the code, make a recommendation, and you can get up to $10 million in coverage, so you don’t need to knock something off the price or put money in an escrow” in order to make the sale. “The insurance represents the guarantee the buyer needs,” Egger says. “That’s where this is a no-brainer.”

Egger says that several large companies approached OSRM with the idea to create this kind of insurance protection, but he says to his knowledge no one has held off on a transaction because the coverage was not yet available.