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Re: Intellectual Property II

From: Alexander Terekhov
Subject: Re: Intellectual Property II
Date: Thu, 09 Feb 2006 19:04:35 +0100

John Hasler wrote:
> > Portuguese Judges wouldn't show such a high level of tolerance 
> > against people who make fun of the Judicial system as Wallace is 
> > doing.
> There are rules for dealing with frivolous litigants.
> I think Wallace is quite serious (though loony), and I think that 
> the judge thinks he is serious, too.  US courts go to considerable 
> lengths to accomodate pro se litigants as access to the courts is 
> an important right.
> It is possible (though unlikely, I think) that Wallace will have 
> attorney's fees assessed against him.

Well, well, well. Wallace filed reply to "DEFENDANTS’ RED HAT INC. AND
NOVELL INC., REASSERTED MOTION TO DISMISS." To me, it doesn't look like
Red Hat and Novell will get Wallace's case dismissed under 12(b)(6).

Wallace on Contract, Combination or Conspiracy:

I. Contract, Combination or Conspiracy

The plaintiff has alleged:
INC. and NOVELL INC. have conspired with the FREE SOFTWARE FOUNDATION
INC. and others to pool and cross license their copyrighted intellectual
property in computer programs that are collectively known as the Linux
(or GNU/Linux) operating system.

The Defendants have used a predatory price-fixing agreement known as the
GNU GENERAL PUBLIC LICENSE to pool and cross license their intellectual
property to develop, distribute and leverage the Linux operating system
to provide computing services for consumers”.; SECOND AMENDED COMPLAINT

This case concerns the pooling and cross-licensing of intellectual
property in computer programs. The defendant cites a Supreme Court
decision, Broadcast Music, Inc. v. Columbia Broadcasting Systems, Inc.,
441 U.S. 1, concerning a “blanket licensing” case. The defendant
attempts to equate the use of the blanket license in Broadcast Music
with the use of the GNU General Public License (GPL) in the present
alleged pooling of computer source code. There is no relevant
comparison. The holding in Broadcast Music was narrowly tailored and
focused exclusively on the vending of copyrighted works under 17 USC
sec. 106(5) involving the public performance of musical compositions:
“This litigation and other cases involving ASCAP and its licensing
practices have arisen out of the efforts of the creators of copyrighted
musical compositions to collect for the public performance of their
works, as they are entitled to do under the Copyright Act”; Broadcast
Music at 10.

The present case concerns a pooling agreement among individual copyright
holders for naked price fixing of computer programs involving rights
under 17 USC 106(1), 106(2) and 106(3). The subject GPL license
explicitly states:
“0. This License applies to any program or other work which contains a
notice placed by the copyright holder saying it may be distributed under
the terms of this General Public License . . . Activities other than
copying, distribution and modification are not covered by this License;
they are outside its scope.” [Emphasis added]

Thus Broadcast Music contains nothing relevant to the present analysis. 

GNU General Public License (GPL)

The GPL [exh. 2] is a copyrighted, standardized form license intended
for use by the general public. It is a contract of adhesion designed to
be applied recursively.

The GPL is a contract to require a contract. That is to say, a licensee
accepting source code for a computer program that is offered for
modification under the GPL license must re-license the resultant
derivative or collective work under the identical contractual terms of
the original GPL license. The contract’s intent is to publicly control a
continuous sequence of modifications to a derivative or collective work
(computer program). It is a scheme to publicly regulate rights under 17
USC 106(1), 106(2) and 106(3) (hence the license title “General Public

The GPL purports to defeat the requirements of contractual privity and
thus evade the prohibition under 17 USC sec. 301 concerning the
contractual regulation of copyrights.

The GPL’s recursive term 2(b) states:
“2. You may modify your copy or copies of the Program or any portion of
it, thus forming a work based on the Program, and copy and distribute
such modifications or work under the terms of Section 1 above, provided
that you also meet all of these conditions:
. . .
b) You must cause any work that you distribute or publish, that in whole
or in part contains or is derived from the Program or any part thereof,
to be licensed as a whole at no charge to all third parties under the
terms of this License.” [emphasis added]

The GPL explicitly declares its regulatory intent:

“Thus, it is not the intent of this section to claim rights or contest
your rights to work written entirely by you; rather, the intent is to
exercise the right to control the distribution of derivative or
collective works based on the Program.”; GPL sec. 2 [emphasis added].

Any licensee who accepts source code under the GPL must re-license any
modified work to all third parties under the identical terms of the
original GPL license. Since this again requires the application of term
2(b) to all third parties’ derivative creations, the GPL license becomes
self- replicating or “recursive”. (In fact the computer industry’s term
for this effect is a “viral” license).

The contractual result of the GPL is a never-ending succession of
modifications always re-licensed under a new copy of the original
license with the resultant modified works price fixed at “no charge” to
all third parties. The GPL’s sec. 6 declares:
“6. Each time you redistribute the Program (or any work based on the
Program), the recipient automatically receives a license from the
original licensor to copy, distribute or modify the Program subject to
these terms and conditions.”

Fixing a uniform price at “no charge” for the licensing fees for
intellectual property for “all third parties” sets both the minimum and
maximum price at zero and constitutes predatory price fixing.

Computer programs licensed under the GPL are thus cross-licensed and
include all source code that has been previously released under a
sequence of modifying GPL licensees. The intent to pool intellectual
property is made explicit in sec 2:
“These requirements apply to the modified work as a whole . . . But when
you distribute the same sections as part of a whole which is a work
based on the Program, the distribution of the whole must be on the terms
of this License, whose permissions for other licensees extend to the
entire whole, and thus to each and every part regardless of who wrote
it.”; GPL sec. 2 . [emphasis added]

The result of GPL use is a potentially unlimited pool of intellectual
property from an unlimited number of successive authors that is price
fixed at no charge and made available for re-distribution exclusively
under GPL terms. The Linux operating system has been accumulating
intellectual property under this scheme since 1992 and is presently
comprised of more than five million lines of computer source code
(including source code owned by each of the defendants as well as code
owned by hundreds of other contributing programmers and organizations).

The recursive license term that binds all third parties is equivalent to
an establishment of exclusive rights that run against the world and
violate 17 USC sec 301 (preemption). See:
“A copyright is a right against the world. Contracts, by contrast,
generally affect only their parties; strangers may do as they please, so
contracts do not create ‘exclusive rights.’”; ProCD v. Zeidenberg, 86
F.3d 1447 (7th Cir. 1996).

The defendants claim an uncoordinated and unrelated unilateral use of
the GPL agreement. The Supreme Court has addressed this disingenuous
type of claim:
“As this Court stated in the Interstate Circuit case (page 227 of 306
U.S., page 474 of 59 S.Ct.): 'It is elementary that an unlawful
conspiracy may be and often is formed without simultaneous action or
agreement on the part of the conspirators. ... Acceptance by
competitors, without previous agreement, of an invitation to participate
in a plan, the necessary consequence of which, if carried out, is
restraint of interstate commerce, is sufficient to establish an unlawful
conspiracy under the Sherman Act.' And as respects statements of various
appellees that they did not intend to join a combination or to fix
prices, we need only say that they 'must be held to have intended the
necessary and direct consequences of their acts, and cannot be heard to
say the contrary.' United States v. Patten, 226 U.S. 525, 543, 33 S.Ct.
316 U.S. 265 (1942)

The plaintiff’s complaint has certainly met the pleading standard
expressed in PEGRAM. ET AL., and Denny's Marina supra, by directly or
inferentially alleging the element of “a contract, combination or

Wallace on Restraint of Trade:

II. Unreasonable Restraint of Trade in a Relevant Market

This case concerns the pooling of intangible intellectual property
assets. The analysis concerning the use these intangible assets under
antitrust law proceeds in a manner similar to the analysis of tangible
physical assets used in other schemes in the restraint of competition.
Before proceeding in this analysis, it should be noted that this action
is a Sherman Act § 1 claim focused on a conspiracy to fix prices. The
defendants’ memorandum freely cites out of context or irrelevant
citations from Sherman Act § 2 attempted monopolization cases. For
“As a prerequisite to showing anticompetitive effects, a plaintiff must
allege facts sufficient to identify a relevant market and the requisite
market power that would enable the defendant to raise prices above a
competitive level without losing its business.. 42nd Parallel, 286 F.3d
at 404 (citations omitted)”; Defendants Brief at 7

The plaintiff has identified the relevant market -- intangible
intellectual property in computer operating systems (Linux). A
prerequisite showing of market power is not a required element of a §1
claim for naked price fixing.

Per Se Pooling Analysis

Pooling and cross-licensing agreements by the owners of patents and
copyrights that restrain competition through price fixing schemes have
been condemned by the Supreme Court as a per se violation of the Sherman
“The power of this type of combination to inflict the kind of public
injury which the Sherman Act condemns renders it illegal per se. . .
That would be no more permissible than a contract between a copyright
owner and one who has no copyright, or a contract between two copyright
owners or patentees, to restrain the competitive distribution of the
copyrighted or patented articles in the open market” ; UNITED STATES v.
MASONITE CORPORATION, 316 U.S. 265 (1942) [emphasis added].
It is important to note that the MASONITE ruling explicitly uses the
term “copyright owners or patentees” in describing the licensing
relationship. Thus “ownership” status may be relevant to the analysis of
whether a licensing relationship between corporate entities is vertical,
horizontal or some mixture of the two relationships in the product
distribution chain.
The Supreme Court reaffirmed its condemnation of pooling and
cross-licensing of intellectual property for the restraint of
competition in UNITED STATES v. NEW WRINKLE, INC., 342 U.S. 371 (1952).
The holding in NEW WRINKLE, INC. guides the Federal Trade Commission’s
civil enforcement policy:
"When cross-licensing or pooling arrangements are mechanisms to
accomplish naked price fixing or market division, they are subject to
challenge under the per se rule. See United States v. New Wrinkle, Inc.,
342 U.S. 371 (1952) (price fixing)"; Antitrust Guidelines for the
Licensing of Intellectual Property, U.S. Department of Justice and the
Federal Trade Commission (1995). 

The GPL is an egregious and pernicious misuse of copyright that rises to
the level of an antitrust violation. The GPL requires control of all
licensees’ software patent rights as well as source code copyrights:

“Finally, any free program is threatened constantly by software patents.
We wish to avoid the danger that redistributors of a free program will
individually obtain patent licenses, in effect making the program
proprietary. To prevent this, we have made it clear that any patent must
be licensed for everyone's free use or not licensed at all.”; GPL
Preamble; [emphasis added ] (see also the GPL sec. 7 ).

The preceding quotation clearly expresses the anti-competitive nature of
the GPL contract. Judge Richard Posner of the Seventh Circuit has
recognized the potential for copyright misuse to rise to the level of an
antitrust violation:
“The doctrine of misuse “prevents copyright holders from leveraging
their limited monopoly to allow them control of areas outside the
monopoly.” A&M Records, Inc. v.Napster, Inc., 239 F.3d 1004, 1026-27
(9th Cir. 2001); see Alcatel USA, Inc. v. DGI Technologies, Inc., 166
F.3d 772, 792-95 (5th Cir. 1999); Practice Management Information Corp.
v. American Medical Ass’n, 121 F.3d 516, 520-21 (1997), amended, 133
F.3d 1140 (9th Cir. 1998); DSC Communications Corp. v. DGI Technologies,
Inc., 81 F.3d 597, 601-02 (5th Cir.1996); Lasercomb America, Inc. v.
Reynolds, 911 F.2d 970, 976-79 (4th Cir. 1990).”; ASSESSMENT
TECHNOLOGIES OF WI, LLC v. WIREDATA, INC., 350 F.3d 640 (7th. Cir.

Alternative Vertical Analysis

In the alternative, if the GPL license is viewed simply as distributing
a collective work in a vertical agreement, a 1990 Supreme Court ruling
condemns such vertical agreements as unlawful if used to establish
prices at predatory levels:

“Although a vertical, maximum-price-fixing agreement is unlawful under 1
of the Sherman Act, it does not cause a competitor antitrust injury
unless it results in predatory pricing. 8 Antitrust injury does not
arise for purposes of 4 of the Clayton Act, see n. 1, supra, until a
private party is adversely affected by an anticompetitive aspect of the
defendant's conduct, see Brunswick, 429 U.S., at 487 ; in the context of
pricing practices, only predatory pricing has the requisite
anticompetitive effect. 9 See Areeda & Turner, Predatory Pricing and
Related [495 U.S. 328, 340] Practices Under Section 2 of the Sherman
Act, 88 Harv. L. Rev. 697, 697-699 (1975); McGee, Predatory Pricing
Revisited, 23 J. Law & Econ. 289, 292-294 (1980).”; ATLANTIC RICHFIELD
CO. v. USA PETROLEUM CO., 495 U.S. 328 (1990) [emphasis added].

In 1997 in State Oil Co. v. Khan, the Supreme Court, while using a rule
of reason analysis, held that the primary purpose of the antitrust laws
is to protect competition and that predatory pricing levels threaten
“Our analysis is also guided by our general view that the primary
purpose of the antitrust laws is to protect interbrand competition. See,
e.g., Business Electronics Corp. v. Sharp Electronics Corp., 485 U.S.
717, 726 (1988). “Low prices,” we have explained, “benefit consumers
regardless of how those prices are set, and so long as they are above
predatory levels, they do not threaten competition.” ARCO, supra, at
340.”; State Oil Co. v. Khan, 522 US 3 (1997). [emphasis added].

Seventh Circuit Precedent
The defendants cite to Generac Corp. v. Caterpillar, Inc., 172 F.3d 971
(7th Cir. 1999) for authority that the GPL is a vertical agreement:
“See Generac Corp. v.Caterpillar Inc., 172 F.3d 971, 977 (7th Cir 1999)
(holding that the licensing of intellectual property rights created a
vertical relationship for antitrust analysis, even if the licensee and
licensor were competitors in other contexts); Defendants Brief at 8. 

In Generac Corp. the Seventh Circuit went on to rule:
“Unlike horizontal agreements, vertical agreements are per se illegal
under Sherman Act sec. 1 only if they impose minimum price restraints.”
[emphasis added]

The alleged contractual agreement (the GPL) used by the defendants
explicitly requires a single, uniform licensing fee be charged for use
of the distributed intellectual property:
“b) You must cause any work that you distribute or publish, that in
whole or in part contains or is derived from the Program or any part
thereof, to be licensed as a whole at no charge to all third parties
under the terms of this License.” GPL sec. 2(b) [emphasis added].

This uniform pricing requirement fixes simultaneously and
non-negotiably, both the minimum (floor) and maximum (ceiling) prices
for all parties. This type of uniform minimum price fixing scheme in a
vertical agreement thus constitutes a per se violation of sec. 1.

He he, floor and ceiling. At zero.


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