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Lloyd's taking on open source IP risk

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Exclusive Lloyd's of London is close to offering independent insurance protection worldwide against potential IP litigation involving Linux and open source software. The financial services giant has agreed to take on the risk associated with open source, and is finalizing arrangements to work through Open Source Risk Management (OSRM) who will become Lloyd's sole US representative.

OSRM will assess both the risk of the software in use and the individual company, before passing on the risk to the appropriate insurance company on the Lloyds market. OSRM expects to announce the first customers this Fall, and will initially charge organizations $60 per server.

The partnership between OSRM and Lloyd's will be vendor independent, differing from many of the existing intellectual property (IP) protection programs that are primarily designed to ward off attack from the litigous SCO Group.

Red Hat, Hewlett Packard and Novell in January 2004 all announced separate protection for customers using their Linux products. JBoss in April this year announced indemnification for its middleware, including JBoss application sever, Cache and Hibernate object relational mapping technology.

The type of coverage provided by Lloyd's also promises to be substantially larger than vendor-backed programs thanks to Lloyds' size and capital backing.

"This is a huge step," OSRM chairman Daniel Egger told The Register.

OSRM first announced plans for indemnification with backing from major financial institutions in March 2004. The group was expected to provide the service shortly afterwards in 2004, but Egger said the program had been complicated to arrange.

"We have lined up the capacity. We have the exclusive right to begin to offer this risk category and we have the customers who want the cover," he said.

An OSRM study found 15,000 patent issues in the Linux, Apache, MySQL and Perl/Python (LAMP) stack. While OSRM believes Linux and open source are, on the whole, safe from IP claims their increasing use by large companies opens the door to suits from those hoping to simply cash in.

Arguably, one of the worst-case scenarios is the so-called "colorable case" - where there is no substance to an IP claim, but a company is forced to waste millions of dollars to defend the claim or settles early for a large sum to make the case go away. The average US patent action is estimated to cost $2m, according to the American Intellectual Property Lawyers' Association.

Those likely to threaten companies and users are commercial software vendors and a growing number of specialist organizations that buy IP patents in order to charge users for their use.

"There is a risk, but it's a material risk," Egger said of Linux and open source. "We are trying to make sure we are not exposing corporates to risk that makes using Linux uneconomic."

Today's vendor-backed plans are unable to provide full protection because they cannot risk protecting parts of the software stack they did not write, he argues. That's a potential issue for organizations with the full Linux, Apache, MySQL and Perl/Python stack develped by different companies.

"Our long-term goal is to get to a standardized policy," Eggers said. ®

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