News & Insights

Representation and Warranty Provisions in Technology Transfer: The Open-Source Software Snare

September 15, 2025

By: Philip T. Mazoki, Mary Lou Wakimura, and Giovanna H. Fessenden-Fairbank

Published in the American Bar Association Business Law Section publication Business Law Today. Access the article on the American Bar Association's website.

Representation and warranty provisions are critical to technology transfer transactions, such as intellectual property (“IP”) license agreements, mergers, and acquisitions. The representation and warranty provisions in a technology transfer agreement indicate guarantees or promises made by the IP proprietor (tech licensor or seller) to the receiving party (tech licensee or buyer) regarding the subject technology of the agreement. Often, the guarantees cover the functionality, performance, and IP rights of the subject technology.

IP rights clauses in representation and warranty provisions are simple on their face; however, the full depth of the copyright and patent right implications are often overlooked when the subject technology involves software.

One major issue may arise from the warranty clause of a tech transfer agreement, which typically guarantees that use of the subject technology will not infringe upon or violate the IP rights of third parties. Below is an example warranty clause:

The Transferred IP are free and clear of any liens, charges, encumbrances or rights of others to possession or use; . . . no claims have been asserted or, to Assignor’s knowledge, threatened by any Person, nor has the Assignor any knowledge of any valid grounds for any claim of any such kind . . . to the effect that the use, reproduction, modification, manufacturing, distribution, licensing, sublicensing, sale or any other exercise of rights in any of the Transferred IP infringes or will infringe on any IP of any Person . . . .

With the proliferation of open-source software (“OSS”), further consideration is warranted regarding the terms “any . . . rights of others to possession or use . . . [of] Transferred IP infringes or will infringe on any IP of any Person” (emphasis added) in such tech transfer warranties. Specifically, to the extent that one or more OSS components are employed by the subject technology, there are corresponding OSS license obligations that the IP proprietor needs to be prepared to face. Noncompliance with an OSS license means the IP proprietor is in breach of the OSS license, which can lead to loss of both copyright use rights and patent use rights of the OSS components. Without those IP use rights, the copyrights and patent rights of the OSS contributors or others may be infringed or violated by the subject technology of the tech transfer agreement.

Today, most software technologies utilize some amount of OSS in conjunction with original program code authored by the tech-licensor (or seller). Thus, most software technologies have IP rights of multiple stakeholders at play—namely, rights of the tech licensor (or seller), rights of the tech licensee (or buyer), and rights of parties to and beneficiaries of implicated OSS licenses.

As such, tech licensees (buyers) must carefully conduct due diligence before accepting IP right representations and warranties with respect to software technologies. Likewise, tech licensors (sellers) must carefully audit their software to ensure OSS compliance before setting forth IP right representations and warranties with respect to software technologies.

For tech licensees (buyers), it is essential to understand any OSS that is part of the licensed technology and the IP right implications of the OSS. This is best accomplished by relying upon software developers and third-party OSS auditing services. As part of their due diligence, tech licensees should inquire about any OSS that is delivered as part of the licensed technology and ensure that the tech licensor’s (seller’s) OSS use does not run afoul of IP rights. Further, when relying upon representations and warranties to utilize licensed technology, tech licensees (buyers) must be aware of any added OSS that they are utilizing. If, for instance, a tech licensee (buyer) utilizes some additional OSS code to implement a licensed technology, it is unlikely that the tech transfer representation and warranty provisions will indemnify the tech licensee (buyer) for any IP rights they violate by utilizing the additional OSS.

Representation and Warranty Insurance

As a replacement or alternative to the tech licensor’s (seller’s) indemnity in technology transfer transactions, representation and warranty insurance (“RWI”) is available for the tech licensee (buyer). RWI policies typically cover a wide range of issues, including IP risks and unknown or unforeseen losses. With RWI, if the representations and warrantees made in the IP license agreement (or IP purchase and sale agreement in the case of mergers and acquisitions) are breached after the deal closes, and financial loss for the tech licensee (buyer) results, then the tech licensee (buyer) can seek recourse through the insurance policy. For the tech licensor (seller), RWI shifts the risk of breach in representations and warranties to the insurance carrier. For the cost of a RWI policy, the carrier assumes the risk of the representation and warranty promises made by the tech licensor (seller), and the tech licensor (seller) is relieved of the risk of future claims of breach of such promises.

In the process of obtaining RWI, the insurance carrier expects the tech licensee (buyer) to conduct thorough and independent due diligence that includes verifying the tech licensor’s (seller’s) software assets and IP claims. Thus, RWI can make tech transfer deals less risky for both parties, but it does not alleviate the need for the tech licensee (buyer) to: (i) perform thorough due diligence and (ii) understand the far-reaching copyright and patent use rights ramifications of OSS involved in the subject technology of the tech transfer deal.

Conclusion

In summary, for software-related tech transfer deals, consider the following steps to mitigate IP risks:

• Make sure IP due diligence includes an audit of software assets and any third-party or OSS code;
• reduce risk by ensuring both sides understand the implications of representations and warranties; and
• consider using RWI to facilitate the transaction and provide added protection.