I got an interesting comment from Mike Pellatt regarding my thoughts on why business models matter. Mike asked what the extension of product liability legislation to software would mean for the industry. This is an interesting question and a nice bit for future speculation so I thought I’d post my response.

Mike,

Thanks for taking the time to comment. It will be for legislatures and courts to decide on how the domains of product liability should be extended. If I were a betting man I would think that the inevitable trend towards ever greater expansion of product liability legislation might at some point bring the software industry into scope.

The interesting question you raise is what impact such an expansion might have on the industry. Obviously depending on the scope of the legislation and the associated penalties it could have a tremendous impact. However, I believe this would be entirely detrimental to the open source movement for the following reasons.

The concept of product liability requires that some entity can be held legally liable and responsible for paying restitution if found in breach. Now obviously a company such as Microsoft would have much to be concerned about given the scope and range of the products it sells. However, at the end of the day Microsoft can afford to implement engineering and governance processes which would reduce it risk exposure and of course it could afford to defend itself in court should that situation arise. The advantage Microsoft has is the fact that is singularly responsible for the products it ships. This is of course why Microsoft is able to offer its customers the industry's most comprehensive indemnity coverage against IP violations. In today's litigious world that is a significant differentiator for customers. Now assume that we extend product liability regimes to the software industry do you think customers will feel more comfortable buying software from a company they can hold accountable or from a Linux distributor who does not have full control of the software they ship?

If you put yourself in the shoes of RedHat or Suse then what do you think and extension of product liability would do to their business models? They have a hard enough time delaing with the inherent IP infringement issues today If they were now to be held liable for anything they ship in their distro would that expand or contract the market opportunity for open source software? How would they be able to ensure that all the various components of their distro did not create some product liability issue? The answer of course is that they could and would not be able to. They would have few choices but to create a closed very tightly controlled distro with only components which they can personally stand behind. Given that liability would also fall on the customers who use software in their businesses you would see a very sharp move away from community developed software towards integrated packaged software of verifiable quality which has a well funded responsible company standing behind it.

The other impact I believe and extension of product liability would have is to completely shut down the debate about component replace-ability in systems. Almost every consumer product which ships today has a little label on it somewhere which states that if you modify the product, open it up and tweak with it, then you void the warranty. If you change <anything> from the configuration that was sold then the manufacturer is no longer liable. An extension of product liability to the software domain would have exactly the same effect. It would result in the hardening of definitions of what constitutes an integrated "System" or product. Your rights to modify that "System" would be severely restricted. Customers like having someone to hold responsible so the net result would be IT policies in organizations which severely restrict the introduction of 3rd party components so that original manufacturer's warranties are not voided. What impact do you think that would have on the open source community?

At the end of the day an extension of product liability rights into the software world would have significant impact but, as with most things, big companies would find a way to manage and even profit from these changes while the smaller companies would collapse under the regulatory and financial burden that these extensions would create. This would inevitably lead to a further consolidation of the software industry as companies attempt to reach the critical size and financial muscle to mitigate these new risks.

Thanks again for the though provoking question