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Re: Hey Terekhov: Wallace lost. Who'd guess.... ;)

From: Alexander Terekhov
Subject: Re: Hey Terekhov: Wallace lost. Who'd guess.... ;)
Date: Tue, 16 May 2006 22:35:45 +0200

Alexander Terekhov wrote:
> "More generally, competitors
> may never be heard to complain of artificially low prices unless they
> are predatory, because it is only predatorily low prices that threaten
> injury to competition.94 94) Id. at 339–40. The Court's discussion was
> consistent with the Brunswick dictum on predatory pricing. See
> Brunswick, 429 U.S. at 489 n.14 (where there is true predation (not
> just uncomfortably aggressive price cutting), a competitor's lost
> profits do count as antitrust injury, even though the predatory
> practice temporarily benefits consumers)."
> "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." -- U.S. Supreme Court
> And Judge Tinder clearly erred.
> Hopefully Judge Young will do better.

Judge Young also erred.

) 1:05-cv-678 RLY-VSS

In his Second Amended Complaint, Plaintiff Daniel Wallace (“Wallace”) 
brings a claim against International Business Machines Corporation, Red 
Hat, Inc., and Novell, Inc. (collectively, “Defendants”) for “restraint 
of trade by way of a licensing scheme to fix the prices of computer 
software.” (See Second Amended Complaint at 1). This matter is before 
the court on Defendant International Business Machines Corporation’s
Motion to Dismiss, in which Defendants Red Hat and Novell join, and on 
Defendants Red Hat and Novell’s joint Motion to Dismiss.

I. Background

Wallace accuses Defendants of conspiring with Free Software Foundation, 
Inc.,1 [1 Wallace’s claims against Free Software Foundation, Inc. were 
dismissed in a separate cause of action, Wallace v. Free Software 
Foundation, Inc., 1:05-cv-0618-JDT-TAB (S.D.Ind. 2006) (Tinder, J.).] 
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.” (Second Amended Complaint at 2). The 
result of this conspiracy, according to Wallace, is the foreclosure of 
competition in the market for computer operating systems and the 
prevention of Wallace from marketing his own computer operating system. 
(Id. at 2-3). Wallace brings his action pursuant to 15 U.S.C. § 26 (§ 
16 of the Clayton Act).2 [2 In his Response to Red Hat and Novell’s 
Motion to Dismiss, Wallace also claims to bring his action under 15 
U.S.C. § 1 (§ 1 of the Sherman Act).] The General Public License, or 
“GPL,” that is the subject of Wallace’s complaint is part of the 
framework commonly known as “open source” software. (Brief in Support 
of Red Hat and Novell’s Motion to Dismiss at 2). “Licensees of computer 
programs that are licensed pursuant to the GPL are not charged for the 
license, but are required to license any derivative works that they 
create using the licensed software under the same terms and 
conditions . . . .” (Id.; see also Ex A (GPL)). Wallace argues that 
the GPL fixes the price of all derivative works at zero, or free, and 
he claims that this amounts to predatory price fixing. (Response to Red 
Hat and Novell’s Motion to Dismiss at 5).

II. Motion to Dismiss Standard

When considering a motion to dismiss pursuant to Federal Rule of Civil 
Procedure 12(b)(6), the court examines the sufficiency of the complaint, 
not the merits of the lawsuit. Fed. R. Civ. P. 12(b)(6); United States v. 
Clark County, Ind., 113 F.Supp.2d 1286, 1290 (S.D. Ind. 2000). The court 
will dismiss a complaint for failure to state a claim only if it 
“‘appears beyond doubt that the plaintiff can prove no set of facts in
support of his claim which would entitle him to relief.’” Hamlin v. 
Vaudenberg, 95 F.3d 580, 583 (7th Cir. 1996) (quoting Conley v. Gibson, 
355 U.S. 41, 45-46 (1957)). In making its determination, the court 
accepts the allegations in the complaint as true, and it draws all 
reasonable inferences in favor of the plaintiff. Mallett v. Wisconsin 
Div. of Vocational Rehabilitation, 130 F.3d 1245, 1248 (7th Cir. 1997); 
Porter v. DiBlasio, 93 F.3d 301, 305 (7th Cir. 1996). The court will 
also consider facts presented in exhibits attached to the complaint. 
See, Zinermon v. Burch, 494 U.S. 113.

III. Analysis

Wallace alleges that the Defendants’ “predatory price-fixing scheme 
prevents [him] from marketing his own computer operating system as a 
competitor.” His complaint fails because it fails to allege 
anticompetitive effects in an identifiable market. Car Carriers, Inc. 
v. Ford Motor Company, 745 F.2d 1101 (7th Cir. 1984) (affirming dismissal 
based on failure to allege an anticompetitive effect).

Antitrust laws are for “the protection of competition, not competitors.” 
Brunswick Corp. v. Pueblo Bowl-o-Mat, Inc., 429 U.S. 477, 488 (1977). In 
this case, the GPL benefits consumers by allowing for the distribution of 
software at no cost, other than the cost of the media on which the 
software is distributed. (Ex. A at ¶ 1). “When the plaintiff is a poor 
champion of consumers, a court must be especially careful not to grant
relief that may undercut the proper functions of antitrust.” Ball Mem’l 
Hosp., Inc. v. Mutual Hosp. Ins., Inc., 784 F.2d 1325, 1334 (7th Cir. 
1986). Because he has not identified an anticompetitive effect, Wallace 
has failed to allege a cognizable antitrust injury.

Wallace has had two chances to amend his complaint, after Defendants 
highlighted the deficiencies discussed herein. His continuing failure to 
state an antitrust claim indicates that the complaint has “inherent 
internal flaws.” Car Carriers, Ic, 745 F.2d at 1105. Wallace will not be 
granted further leave to amend his complaint because the court finds 
that such amendment would be futile. See Shanahan v. Chicago, 82 F.3d 
776 (7th Cir. 1996).

IV. Conclusion

Defendant International Business Machines Corporation’s Motion to 
Dismiss (Docket #51) and Defendants Red Hat, Inc. and Novell, Inc.’s 
Motion to Dismiss (Docket #53) are granted. Wallace’s complaint is 
hereby dismissed with prejudice.

Dated: May 16, 2006.


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