“Open Source” Fintech Battle

Last week, Jelruida Ltd., the maker of Nxt blockchain, announced that it had filed suit in the Netherlands against rival Apollo Fintech (“Apollo”) for breach of the Jelruida Public License, a self-described “coinleft” license.

The complaint, which was not published with the announcement but was quoted liberally in Jelruida’s press release, alleged that Apollo’s software was “cloned from Nxt.” It further states, “Apollo copied source code files from the Nxt Software one-on-one into the Apollo Software. In addition, Apollo modified source code files of the Nxt Software and included these in the source code for the Apollo Software.”

The press release goes on to say, “In 2018, Apollo launched as an Nxt clone but failed to adhere to the JPL license terms. After ignoring four cease and desist letters, Apollo belatedly complied in August 2018. The compliance proved short-lived, however, and in October 2019 Apollo replaced the JPL in its software with a proprietary license. This constitutes a violation of the JPL, which … requires that any derived work continue to be distributed only under exactly the same license. This viral “copyleft” requirement is a cornerstone of many open source licenses, most notably the GPL.”

The press release further stated that “A writ of summons has been filed in the Netherlands and the case will be heard on August 25 in Amsterdam. The court case has implications for the widespread illicit practice of cloning blockchain code, and open source software in general….”

The JPL

The Jelruida Public License is self-described in its FAQ as similar to GPL, but there are significant differences.

The JPL has a “10% airdrop requirement.” The JPL FAQ says, “as a consequence of the 10% Airdrop requirement, internal use (a private or permissioned clone) is not allowed except for an evaluation purposes no longer than three months. This is because a private/permissioned blockchain clone cannot fulfill the Airdrop requirement.” The relevant language in Section 3.4 of the JPL is fairly impenetrable to the lay reader and specific to the blockchain context:

3.4 If the Covered Work is a DLT Software [i.e. a distributed ledger], after your modifications it must continue to work with the original DLT Instance without violating the consensus algorithm or resulting in a permanent fork…. If your modifications result in a different DLT Instance you must satisfy the following airdrop requirement:

3.4.1 The token holders from the original distributed ledger instance shall be allocated a portion (an “airdrop”) of the tokens in that new DLT Instance proportional to their token balances.

https://www.jelurida.com/sites/default/files/JPLv1.2-NRS.pdf

These terms violate the open source definition on face, given they require a fee — albeit in crypto-coins (violating plank 1 of the OSD) — and discriminate against DLTs (violating planks 6 and 10) . Moreover, most open source licensors do not describe their own licenses as “viral.” So, Jelruida’s efforts to characterize the prosecution of this dispute as advancing the spirit of open source may be difficult.

Apollo’s Response

In response, Apollo brought and action for declaratory judgment (Case 7:20-cv-00186 Document 1 Filed on 07/08/20 in TXSD) asking a US federal court to find:

  • that Apollo is the owner of the copyrights in its computer software and that no ownership and/or co-ownership rights therein extend Jelruida;
  • Jelruida must cease and desist from asserting that they own and/or co-own any rights therein

The complaint alleges that the Nxt software claimed as original by Jelruida was “in actuality, a public domain work which was anonymously deposited into public domain for the benefit of the entire open source community and not as something that Defendants or any of them could assert exclusive ownership or exclusive control rights over.”

It is unclear whether the reference to “public domain” refers to the absence of a copyright interest or other intellectual property interests. Outside the US, it is notoriously difficult to confidently conclude that any copyright has fallen into the public domain before its expiration.

The DJ complaint contains a number of statements that contradict the Jelruida press release. According to the complaint, the Nxt blockchain was “licensed and license fees valued at over $5 million (U.S.) dollar were fully paid” to Jelruida, who “now claim that no license or other rights exist in any aspect of the previously fully paid open source use.”

Of course, a truly “open source” use would not require a license fee, but the JPL is not exactly open source, which might explain the seeming inconsistency of this statement.

The complaint also alleges, “Since 2017 and on a continuing basis and with over 200 person-years of software engineering, Plaintiff continually wrote, re-wrote, improved and extended …its APL software. Apollo’s source code
and its overall functionality have significantly changed….The Apollo team wrote and re-wrote significant replacement and significant additional computer software. As a result, Apollo is radically different from anything owned or claimed to be owned by [Jelruida]. All copyrights of [Apollo] are owned solely by [Apollo].”

An allegation of violation of an open source license is not exactly germane to ownership of code, and does not imply “co-ownership.” Contrary to the persistent and pernicious “virality” meme still alive in open source discussions, violating an open source license does not alter ownership of derivative works of the licensed code. However, Apollo seems to be alleging that the JPL was irrelevant, because it rewrote the code to the extent necessary to avoid any copying, and thus avoid the need for a copyright license — a difficult thing to do even in a “clean room” process.

Oddly, Apollo is asking the court to declare that it owns all of the code in its software. DJ actions normally only ask a court to declare that an allegation of infringement is not true. There is a wide gulf between owning every line of one’s software and merely having the right to use it — the former being a fairly rare subset of the latter.

The complaint goes on to state, “Put simply, it is against the custom and usage of the open source community … for [Jelruida] to assert that Plaintiffs may not continue to use and continue deploy the software of Plaintiffs for the benefit of its users in the United States. No trade secrets and no patents exist in any of the
software of Defendants and all ideas, concepts, processes, algorithms, systems, and methods disclosed in the published software of Defendants have been and now are in the public domain.”

Of course, ideas, concepts, processes, and so forth are elements expressly not governed by copyright law under 17 USC 102b, so the statement appears to be saying that Apollo is not infringing any copyrightable element in the Jelruida code.

What is this Case About?

We won’t know until the facts become clearer, but the crux of the dispute seems to be whether Apollo re-wrote the Nxt code or copied it. This set of lawsuits may develop into a dispute over what elements are protectable under copyright, which would be interesting given the pendency before the US Supreme Court of Oracle America v. Google. But given the JPL is not a true open source license, this case promises to further muddy the waters as to the meaning of “open source.” It may also provide a view into the highly competitive world of crypto-currency development. Most blockchain systems are in fact heavily based on true open source software, so allegations of non-compliance are likely to arise in the field, even after this case is over and done.

Author: heatherjmeeker

Technology licensing lawyer, drummer, dancer

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