Open source compliance representation and warranty insurance is the first insurance to give coverage for the specialised risks faced by enterprises that include or rely upon elements of Linux and other open source software in their commercial products or internal IT infrastructure. It is designed to deal with the business risks that arise in mergers and acquisitions or where a seller makes standard representations and warrants that the software being used within the company is not in breach of any software licenses, including open source license such as the General Public License (GPL).

Any enterprise that builds software systems, whether for commercial distribution or for its own internal use, may find itself in violation of the terms and conditions under which Linux and other open source software is made available.

Worldwide, more than 30 legal disputes involving infringement of open source licenses have been brought against organisations in the last two years. In every known case, the plaintiffs have prevailed in enforcing their rights to restrict the use of their code.

Who would benefit from this insurance?

Any company that is entering into a sale or investment agreement that requires it to provide a representation and warranty to show compliance with all open source software licenses would benefit from this type of insurance. Hardware and software companies that use or rely on open source components in their commercial products are at the greatest risk. However companies that have made substantial investment in internal IT infrastructure and applications, which may have inadvertently distributed that software, even though the software is not for commercial sale, are also at risk, especially if they have had bespoke solutions created for them by contract staff or external organisations.

What does the insurance cover?

The insurance provides coverage up to US$10 million in respect of:

• Loss of profits resulting from an injunction preventing the use or sale of the insureds product(s) as a result of the requirement to distribute certain code or products, in compliance with an Open Source software license
• The impaired valuation of an acquisition agreement or adjusted sale price thereof, as a result of the requirement to distribute code or products exchanging Open Source software in compliance with an Open Source software license
• In certain circumstances, costs to mitigate such losses including the expense of repair or replacement of code

The operative elements of cover would be confirmed at the time of quotation.

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