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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: Thu, 18 May 2006 11:29:46 +0200

David Kastrup wrote:
> Alexander Terekhov <> writes:
> > David Kastrup wrote:
> > [...]
> >> > Wallace brought forth the GPL. The GPL is his evidence.
> >>
> >> Yes.  No facts compatible with his claim of predatory pricing.
> >
> > And how do you know?
> By virtue of having a brain. 

Here's an exercise for your brain. First, I'll address your remark in 
reply to mini-RMS:

| > But of course, in Therekovian there's only one incentive for "life":
| > getting money.
| Last time I looked, RedHat was getting money.

This fact is compatible with Wallace's claim of predatory pricing 
conspiracy pursuant to the GPL. Those ancillary revenues from "no 
charge" GPL'd code can NOT "explain the lengths to which" 
Microsoft^H^H^H^H^H^H^H^HRed Hat "has gone" (see below). It could
have been BSD and alike licensed code in its entirety which Red Hat
could have used to produce those ancillary revenues, and Wallace 
doesn't have any problems with RedHat's use of BSD and alike 
licensed code which doesn't price-fix IP at predatory level. The 
Judge in Microsoft antitrust case ruled:

"Proof that a profit-maximizing firm took predatory action should 
suffice to demonstrate the threat of substantial exclusionary effect; 
to hold otherwise would be to ascribe irrational behavior to the 
defendant. Moreover, predatory conduct, by definition as well as by 
nature, lacks procompetitive business motivation. See Aspen Skiing, 
472 U.S. at 610-11 (evidence indicating that defendant's conduct was 
"motivated entirely by a decision to avoid providing any benefits" to 
a rival supported the inference that defendant's conduct "was not 
motivated by efficiency concerns"). In other words, predatory behavior 
is patently anticompetitive. ... Microsoft has no intention of ever 
charging for licenses to use or distribute its browser. Id. ¶¶ 137-38. 
Moreover, neither the desire to bolster demand for Windows nor the 
prospect of ancillary revenues from Internet Explorer can explain the 
lengths to which Microsoft has gone. In fact, Microsoft has expended 
wealth and foresworn opportunities to realize more in a manner and to 
an extent that can only represent a rational investment if its purpose 
was to perpetuate the applications barrier to entry. Id. ¶¶ 136, 
139-42.  Because Microsoft's business practices "would not be 
considered profit maximizing except for the expectation that . . . 
the entry of potential rivals" into the market for Intel-compatible 
PC operating systems will be "blocked or delayed," Neumann v. 
Reinforced Earth Co., 786 F.2d 424, 427 (D.C. Cir. 1986), Microsoft's 
campaign must be termed predatory. Since the Court has already found 
that Microsoft possesses monopoly power, see supra, § I.A.1, the 
predatory nature of the firm's conduct compels the Court to hold 
Microsoft liable under § 2 of the Sherman Act."

Note that Wallace's case is an action under § 1 of the Sherman Act.

The anticompetitive nature of the GNU GPL is no-brainer. The GNU 
project was designed to be anticompetitive. Go read the GNU Manifesto.

"GNU will remove operating system software from the realm of 
competition. You will not be able to get an edge in this area, but 
neither will your competitors be able to get an edge over you. You 
and they will compete in other areas, while benefiting mutually in 
this one. If your business is selling an operating system, you 
will not like GNU, but that's tough on you. If your business is 
something else, GNU can save you from being pushed into the 
expensive business of selling operating systems."

So once again, please tell me what's wrong with Wallace's claim of 
predatory pricing as explained below. 

Predatory pricing

The GPL establishes a predatory pricing scheme. Setting the maximum
price of intellectual property at “no charge” removes all motive to
compete. The Supreme Court has analyzed predatory pricing in a Sherman
Act § 1 civil action:

“…[T]his is a Sherman Act 1 case. For purposes of this case, it is
enough to note that respondents have not suffered an antitrust injury
unless petitioners conspired to drive respondents out of the relevant
markets by (i) pricing below the level necessary to sell their products,
or (ii) pricing below some appropriate measure of cost.” MATSUSHITA
ELEC. INDUSTRIAL CO. v. ZENITH RADIO, 475 U.S. 574 (1986) [fn8].

If we exam case (i) “pricing below the level necessary to sell their
products” the obvious result of the GPL is the destruction of interbrand
competition (see State Oil Co. v. Khan, supra) when the maximum price of
intellectual property is set at zero (“no charge”). New developers and
vendors of intellectual property cannot enter a market for which there
is no reward or incentive.

Not only competitors are harmed by the GPL scheme. Consumers lose
because a lack of competition removes not just product choice but
without competitive reward the incentive to improve product quality

When we analyze case (ii) “pricing below some appropriate measure of
cost” we see that a maximum price of zero for the intellectual property
in computer programs leads to an absurd result. In addition to the
intrinsic value ordained by Art. I, §8, cl. 8 of the Constitution, the
cost of creation of intellectual property in computer programs entails
the development costs of skilled programmers, new computer hardware,
communications costs and administrative overhead. Commercial computer
programs are not developed in a zero cost vacuum -- that is an absurd
proposition. A maximum price of zero is below any reasonable definition
of “appropriate measure of cost” concerning development and innovation
of intellectual property assets.

The only economic motive for using GPL licensed intellectual property in
a competitive market for computer operating systems is to destroy a
competitor who is striving to create positive value based in
intellectual property. The Supreme Court has addressed the practical
evidentiary burden for a predatory pricing claim:
“As a practical matter, it may be that only direct evidence of
below-cost pricing is sufficient to overcome the strong inference that
rational businesses would not enter into conspiracies such as this one”;

The GPL’s term 2(b) is without question direct evidence of a below-cost
pricing scheme. Commercial distributors of GPL licensed products
conspire to give away their assets in intellectual property and then
recoup losses by leveraging ancillary markets such as computer hardware
sales (computer hardware obviously requires an operating system),
software consulting fees, employee training programs and computer
maintenance services. (One uncharged co-conspirator, INTERNATIONAL
BUSINESS MACHINES CORPORATION, is the World’s largest computer hardware
and computing services corporation.)

The effect of the GPL license is to create a Marxist-Leninist model for
computer programs, where a vast pool of intellectual property is
collectively price fixed at “no charge” and thus removed from commercial
exploitation. In time, due to its recursive nature, the GPL’s pool of
price fixed intellectual property can grow to utterly destroy a targeted

It is not consumers that the GPL intends to benefit -- the goal is the
destruction of competition in the free market. The GPL license renders
U. S. Const., Art. I, §8, cl. 8 meaningless in the context of computer
programs containing copyrights and patents.

The defendants assert:

“The GPL expressly allows Defendants, and any other licensee, to charge
a fee to recover the variable or incremental costs associated with
distributing software licensed under the GPL: You may charge a fee for
the physical act of transferring a copy..” Defendants Brief at 5.

Here, the defendants attempt to conflate the definition of intangible
copyright assets with the physical media in which a work is embodied:
“Ownership of a copyright, or of any of the exclusive rights under a
copyright, is distinct from ownership of any material object in which
the work is embodied. ..”;17 USC sec. 202.

The present claim is for price fixing in the relevant market of
intangible intellectual property assets in computer programs (the Linux
operating system) and not an action concerning tangible media or
“physical acts” involving the distribution of tangible media in which a
copyrighted work may be fixed.


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