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Section 4 of the Apache License v2.0 states:

You may add Your own copyright statement to Your modifications and may provide additional or different license terms and conditions for use, reproduction, or distribution of Your modifications, or for any such Derivative Works as a whole, provided Your use, reproduction, and distribution of the Work otherwise complies with the conditions stated in this License.

Let's say I take a software (Work) licensed under the Apache License v2.0, and create a Derivative Work and license it (the Derivative Work) as a whole under the MIT license.

Would the Derivative Work now be compatible to be combined with GPLv2 software, to become licensed under the GPLv2 as a whole, since the MIT license is compatible with the GPLv2 license?

Or would it remain incompatible, because the GPLv2 license is incompatible with the Apache License v2.0?

The quoted paragraph requires compliance with the conditions of the Apache License v2.0 for the distribution of the Work, but not the distribution of the Derivative Work as a whole.

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There may be a slight misunderstanding about licence compatibility here. If two licences are compatible, it doesn't mean that you can take code released under one, and incorporate it into a project licensed solely under the other; it means you can combine it with code under the other licence and release the resulting work under a set of conditions which is the union of the sets of conditions of the two licences, and that no self-contradiction will arise.

When X licence is compatible with (eg) GPLv3, it means that no requirements in X contradict, or are contradicted by, any requirement of GPLv3. Apache2 is incompatible with GPLv2 because Apache2 includes a patent licence and a termination provision thereon (s3), and GPLv2 includes no such provision, and requires that GPLv2 be the licence under which the entire derivative work is distributed (s2b).

Combining third-party Apache2 code with MIT code doesn't magically "cleanse" the resulting work from the Apache licence and its requirements, it merely doesn't make a work that cannot be distributed. Should you make such a thing, you may either keep the parts separate and under their own licences (in which case the MIT portions may be used on their own as part of a later GPLv2 work), or you may combine the parts and distribute them under the union of the two input licences (in which case no part may be later removed for use in a GPLv2 work).

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