Can an employee of a non-profit sign CLA and contribute to open source project under a copyright of a for-profit

Question

I am mostly thinking in the context of USA.

If there is a non-profit X 501(c)(3) with an employee A. Can this employee A contribute during work hours to an open source project which requires them to sign a CLA for contributions they are making to this open source project. This contribution is with full knowledge and approval by the non-profit itself, in fact, A is directed by the non-profit to do this.

This open source project is managed by an organization Y, which is a for-profit and it also holds copyright over the source code of the project (thus why they require a CLA to be signed), but the source code is available to the public under an open source license. But the for-profit Y also uses this code to provide for-profit services/products.

So in a way to me it looks like it should be reasonable to contribute, this is how open source works. But on the other hand it is assigning IP from non-profit to for-profit without for-profit paying for that. So I am not sure what to make of this.

There are also different possibilities what this open source project means to the non-profit (GitLab is used just an example, they are not really using CLAs):

• It could be something which is directly aligned with the mission of the non-profit. For example, a non-profit which helps educators use GitLab to communicate with students through issues and comments and code snippets. They want to contribute a feature to improve something on GitLab.
• GitLab is just used by the non-profit internally for project management.

There are multiple types of CLAs (e.g., one when you assign your rights to the organization Y; one where you just give the organization Y full license to your contribution, but you keep the rights). Is there are difference between them related to this question?

There are different open source licenses out there. Does picking one or the other change anything in the context of this question?

Answer 1

What you're talking about is private benefit.

The nonprofit does labor that benefits a for-profit entity (which can include a natural person). That is somewhat different from inurement, which is when the private benefit goes to insiders.

It would be inurement if the nonprofit X and for-profit Y overlapped in Board of Directors, management, or ownership, or if nonprofit employee A held substantial interest in Y.

As IRS says, "A little inurement goes a long way", a motorcycle club lost its status for giving refreshements and items to its members (for 8% of budget, however).

Fortunately, this is not inurement. IRS says "In the charitable area, some private benefit may be unavoidable. The trick is to know when enough is enough."

If the contribution is minor and incidental

Then in my opinion the organization has little to worry about. It is obtaining open-source software at no cost that it would otherwise have to pay for at retail. Contributions back into open-source projects are normal. Its contributions are modest in scale (they're not writing the software for company X) in terms of both the size of the software and the size of the nonprofit's activities.

It doesn't appear as a major activity or cost center to the nonprofit. (IRS requires documenting the top 3).

The private benefit to X is insubstantial and indirect: it's not like the nonprofit wrote a "nonprofit module" which X turned around and sold as a content pack.

The contribution is substantial

Then the nonprofit forms a subsidiary for-profit corporation or corp-taxed LLC. It is certainly permissible for a nonprofit to own 100% of the stock in a for-profit; this doesn't even count as unrelated business income since dividends are exempt from that. The subsidiary operates in a for-profit form, and pays its own income tax.

The only issue is the for-profit needs to have a viable business model and a rational chance at a profit; it can't be a sham corporation that was created solely to extract money from the nonprofit.