Tech startups have been using open source software for years, but it’s so prevalent now that virtually every company with source code has incorporated some amount of open source code into it. In the M&A context, the realities of open source are forcing the reps and warranties in mergers to change. Even now, it’s not uncommon to see a deal that includes a rep that the source code contains NO free or open source software. More realistic reps today are centered around two things: inventory and compliance. A fair representation will have a complete definition of open source and will ask for a disclosure of all open source software, the licenses each package is under, and where it is being used (i.e. which products and have they been distributed). It is also fair to ask for a representations that the Seller is in compliance with the terms of all open source licensing agreements and has not taken any actions that would subject its source code to public disclosure. Buyers also want to know about the compliance process companies use to adhere to the terms of the various licenses they are using. The general concern here is that some open source licensing agreements contain terms that basically say that you can use the open source code for free, but if you make any improvements or alterations to the code, you need to make those improvements or alterations publicly available. The parties to a merger need to get comfort that the Seller did not take some open source code and plug it into its proprietary software with the proprietary software now being deemed an improvement of the source code which would have to be publicly disclosed. There is usually a way to prevent the nightmare scenario from happening, but that is often the Buyer’s biggest concern in doing its due diligence on this issue. If you’re looking for more information on this topic, contact Jason Haislmaier at Holme, Roberts, and Owen who regularly presents on legal open source issues, including the one we saw.