A few days ago, our colleagues at the ifrOSS (Institute for Legal Questions on Free and Open Source Software) published a proposal for an amendment to the German Insolvency Act that would better protect the open source licensing model in case the licensor goes bankrupt.The ifrOSS proposal comes in the context of a broader legislative initiative of the Ministry of Justice, which is intended to improve the protection of license agreements against the consequences of the licensor’s bankruptcy. We will report on this in more detail soon. For now, however, we focus on the ifrOSS recommendation.

Under German law, licensees currently risk losing their ability to use their licenses once their licensor files for bankruptcy and the insolvency administrator refuses the performance of the licenses already granted (see sec. 103 of the Insolvency Act; please note that under German law, licenses are considered contracts not just mere unilateral permissions.). If this applies to open source licenses is not entirely clear, and even though there are very convincing arguments against such an assumption, it is possible that a court could hold otherwise. Moreover, the insolvent right holder also ceases to be able to grant any new licenses, including open source licenses (see sec. 80 of the Insolvency Act). As a consequence, potential users could not enter into new open source license agreements for the respective software, even if the software contains a licensing offer. Obviously, this outcome could endanger large open source eco systems with numerous contributors and would not suit the open source concept at all.

The ifrOSS suggests now to introduce into the Insolvency Act a new provision ensuring that the open source licensing model would not be affected by a licensor’s bankruptcy. Firstly, they propose to clarify that sec. 103 of the Insolvency Act does not apply to non-exclusive licenses granted without consideration to the world at large. Secondly, wording should be included that any offer to grant such licenses made before the licensor’s bankruptcy should remain valid so that it could be accepted by anyone even after that event.

ifrOSS has once before successfully pushed for statutory provisions reflecting the special character of open source licenses: Sec. 32 para 3, 2nd sentence and sec. 32a para 2, 2nd sentence of the Copyright Act (the so called Linux clauses), enacted at ifrOSS’ initiative, clarify that authors may “grant a non-exclusive exploitation right without consideration to the world at large”, thereby excluding the otherwise untouchable statutory right to receive equitable remuneration for any license grant (see in more detail the International Free and Open Source Software Law Book). Considering this track record, it’s not unlikely that the new proposal will make it into the law as well.