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

[Alexander Terekhov]

David Kastrup wrote:
[...]
> [Appeal claim]
> 
> This is going to be cute.  The problem with an appeal is that Wallace
> does not merely have to get it right this time: he has to prove that
> he got it right last time around, and the court just failed to notice.
> 
> It would take considerable skill to make a case that has a chance to
> even survive into trial.  But proving that the previous attempt
> already was sufficient would seem like an impossibly hard problem even
> for somebody with a legal clue.

---------
IN THE UNITED STATES COURT OF APPEALS
FOR THE SEVENTH CIRCUIT

DANIEL WALLACE, Appeal from the United
Plaintiff-Appellant, States District Court
for the Southern District
No. 06-2454 v. of Indiana, Indianapolis
Division

INTERNATIONAL BUSINESS MACHINES
CORPORATION, RED HAT INC, and No. 05 C 678
NOVELL, INC.,
Defendants-Appellees. 

                       Richard L. Young, Judge

SUBMISSION

Plaintiff-appellant Daniel Wallace appears pro se and pursuant to
Fed. R. App. P. 31 and Cir. R. 31. submits fifteen bound copies [H.I.]
of
the BRIEF AND REQUIRED SHORT APPENDIX OF PLAINTIFFAPPELLANT
and one digital version on CD-ROM.
___________________________________ Dated: June 14, 2006
Daniel Wallace, pro se
P.O. Box 572
New Palestine, IN 46163
(317) 861 6415

CERTIFICATE OF SERVICE

The undersigned plaintiff-appellant Daniel Wallace, pro se, hereby
certifies that I caused two copies of the foregoing opening brief with
included required short appendix and one digital copy to be served by
first-class certified mail, postage prepaid, on each of the following
counsel:

Michael H. Gottschlich
BARNES & THORNBURG LLP
11 South Meridian Street
Indianapolis, IN 46204
(317) 231-7834

Curtis W. McCauley
ICE MILLER LLP
One American Square
Suite 3100
Indianapolis, IN 46282
(317) 236-2388

___________________________________ Dated: June 14, 2006
Daniel Wallace, pro se
P.O. Box 572
New Palestine, IN 46163
(317) 861 6415
---------

---------
No. 06-2454
______________________________
UNITED STATES COURT OF APPEALS
FOR THE SEVENTH CIRCUIT
_______________
DANIEL WALLACE,
Plaintiff-Appellant,
v.
INTERNATIONAL BUSINESS MACHINES
CORPORATION, RED HAT INC., and
NOVELL, INC.,
Defendants-Appellees.
______________________________
Appeal From The United States District Court
For The Southern District of Indiana,
Indianapolis Division
Case No. 05-C-0678
The Honorable Judge Richard L. Young
______________________________
BRIEF AND REQUIRED SHORT APPENDIX OF
PLAINTIFF-APPELLANT, DANIEL WALLACE
______________________________
Daniel Wallace, Pro Se
P.O. Box 572
New Palestine, IN 46163
(317) 861-6415

i

TABLE OF CONTENTS
TABLE OF CONTENTS
..........................................................................
i
TABLE OF AUTHORITIES
..................................................................... ii
JURISDICTIONAL STATEMENT
............................................................ 1
STATEMENT OF THE ISSUES
.............................................................. 1
STATEMENT OF THE CASE
................................................................. 1
STATEMENT OF FACTS
.......................................................................
2
SUMMARY OF THE ARGUMENT
........................................................... 4
STANDARD OF REVIEW
.......................................................................
4
ARGUMENT
.........................................................................................
5
Elements of the Claim
................................................................. 5
I. Contract, Combination or Conspiracy ............................. 6
II. Unreasonable Restraint of Trade in a Relevant
Market
...........................................................................
7
III. Accompanying Injury
.................................................... 8
CONCLUSION
....................................................................................
11
CERTIFICATE OF COMPLIANCE WITH F.R.A.P. RULE 32(a)(7) ............ 12

ii

TABLE OF CONTENTS
(continued)
CIRCUIT RULE 31(e)(1) CERTIFICATION
............................................. 13
PROOF OF SERVICE
..........................................................................
14
CIRCUIT RULE 30(d) STATEMENT
...................................................... 15
REQUIRED SHORT APPENDIX
........................................................... 16
TABLE OF AUTHORITIES
Cases
American Ad Management, Inc. v. General Telephone Co.
of California, 190 F.3d 1051 (9th Cir.1999)
......................................... 10
Atlantic Richfield Co. v. USA Petroleum Co., 495 U.S. 328 (1990)
............ 9
Brunswick Corp. v. Pueblo Bowl-O -Mat, Inc., 429 U.S. 477 (1977)
......... 9
Cargill Inc. v. Monfort of Colorado, Inc., 479 U.S. 104 (1986)
.............. 5, 9
Cler v. Ill. Educ. Ass’n, 423 F.3d 726 (7th Cir. 2005)
............................. 5
Denny's Marina, Inc. v. Renfro Prods., Inc., 8 F.3d 1217
(7th Cir. 1993)
......................................................................................
5
EEOC V. Waffle House, Inc., 534 U.S. 279 (2002)
.................................. 7
Generac Corp. v. Caterpillar, Inc., 172 F.3d 971 (7th Cir. 1999)
............. 8
In re: Aimster Copyright Litigation, 334 F.3d 643 (7th Cir. 2003)
............ 6
Kirksey v. R. J. Reynolds Tobacco Co., 168 F.3d 1039
(7th Cir. 1999)
......................................................................................
5

iii

McCoy v. Mitsuboshi Cutlery, Inc., 67 F.3d 917 (Fed. Cir. 1995)
............. 6
TABLE OF AUTHORITIES
(continued)
Matsushita Elec. Industrial Co. v. Zenith Radio, 475 US 574
(1986]
...........................................................................................
10, 11
MCI Communications v. AT&T, 708 F.2d 1081 (7th Cir. 1983) ..............
11
MCM Partners, Inc. v. Andrews-Bartlett & Assocs., 62 F.3d 967
(7th Cir. 1995)
......................................................................................
5
ProCD Inc. v. Zeidenberg, 86 F.3d 1447 (7th Cir.
1996).......................... 7
Small v. Chao, 398 F.3d 894, 897 (7th Cir.
2005)................................... 4
Stevens v. Umsted, 131 F.3d 697 (7th Cir.1997)
..................................... 2
United States v. New Wrinkle Inc., 342 U.S. 371 (1952)
......................... 7
United States v. United States Gypsum Co., 333 U.S. 364 (1948) .......
6, 7
United States v. Line Material Co., 333 U.S. 287 (1948)
......................... 7
Zinermom v. Burch, 494 U.S. 113 (1990)
............................................... 5
Statutes
15 U.S.C. §1 (Sherman Act §1)
........................................................ 5, 10
15 U.S.C. §26 (Clayton Act §16)
.................................................... 1, 2, 5
17 U.S.C. §101 (Definitions)
................................................................. 3
17 U.S.C. §301(a) (Preemption)
............................................................. 7
28 U.S.C. §1291 (Final decisions)
......................................................... 1
28 U.S.C. §1331 (Federal question)
....................................................... 1
Other Authorities
Antitrust in the New Economy, (Nov. 2000) U. Chicago Law

iv

& Economics, Olin Working Paper No. 106
......................................... 10
TABLE OF AUTHORITIES
(continued)
Fed.R.Civ.P. 8(a)(2)
...............................................................................
5
Fed.R.Civ.P. 12(b)(6)
.........................................................................
1, 2

1

JURISDICTIONAL STATEMENT

Plaintiff Daniel Wallace appeals from a final order of the United
States District Court for the Southern District of Indiana, Indianapolis
Division, the Honorable Richard L. Young presiding.

The district court had jurisdiction under 28 U.S.C. §1331 (Federal
question) and 15 U.S.C. §26 (Clayton Act §16).

The basis for this Court’s jurisdiction is 28 U.S.C. §1291 (Final
decisions of district courts).

The district court’s final judgment was entered on May 16, 2006.

Appellant’s notice of appeal was timely filed on May 19, 2006.

Plaintiff-appellant waives request for oral argument.

STATEMENT OF THE ISSUES

The issue on appeal is whether the district court erroneously
dismissed plaintiff’s Second Amended Complaint pursuant to
Fed.R.Civ.P. 12(b)(6) for failure to state a claim upon which relief may
be
granted.

STATEMENT OF THE CASE

Pro se plaintiff Daniel Wallace filed the original complaint in this
matter on May 9, 2005. A second amended complaint was filed in
December 2005. The claim alleged an agreement among the defendants

2

IBM Corp., Red Hat Inc., Novell Inc. and others to utilize a copyright
and
patent license known as the GNU General Public License to price fix
computer software at predatory levels. Wallace requested injunctive
relief
pursuant to 15 U.S.C §26 (Clayton Act §16).

Defendants IBM et al. filed a joint motion to dismiss the claim
under Fed.R.Civ.P. 12(b)(6). The motion was fully briefed and Judge
Young granted judgment against Wallace on May 16, 2006.

STATEMENT OF FACTS

For the past ten years a software copyright and patent license has
been circulated by way of the Internet.1 Titled the GNU General Public
License (“GPL”) (Ex A (GPL)) it has been utilized to publicly regulate
pooled and cross-licensed computer software, including the GNU/Linux
(“Linux”) operating system. The GPL license was intentionally designed
to
remove the intellectual property contained in computer software from the
realm of competition.

Literally thousands of independent software developers worldwide
including the defendant-appellees (“IBM et al.”) have used the GPL and
the Internet to collaborate while authoring evolving copyrighted
derivative
and collective works, including the Linux computer operating system.

1 These facts are set out in conformance with the rule applied in
Stevens v.
Umsted, 131 F.3d 697, 705 (7th Cir.1997) allowing a plaintiff to plead
additional
consistent facts in an appeal from an order granting a Rule 12(b)(6)
motion to
dismiss.

3

The intellectual property in computer programs2 developed under
the GPL is known as “free software”. Conversely, software that is
licensed at a profit for the use of its intellectual property is known
as
“proprietary software”.

The GPL contains a recursive term stating “You must cause any
work . . . to be licensed as a whole at no charge to all third parties
under
the terms of this License” (Ex A (GPL)§2(b) at 2) that binds all future
developers that contribute modifications to the software.

The goal of free software developers is to generate a pool of
intellectual property free from commercial exploitation. Those
developers
of computer software who agree to license their derivative or collective
contributions at “no charge” are allowed to distribute the intellectual
property accumulated under the GPL license.

Free software is distributed at the consumer level through
independent, competing retail brand names by many commercial entities
including IBM et al. The pooled intellectual property in the Linux
operating system is licensed to consumers fixed at “no charge” and any
lost profits are then recouped through ancillary Linux markets such as
proprietary licensed middleware, computer hardware, information
technology consulting and software support services.
Commercial distributors of GPL licensed software target

2 A ''computer program'' is a set of statements or instructions to be
used
directly or indirectly in a computer in order to bring about a certain
result. 17
U.S.C. §101 Definitions.

4

independent developers of computer software that rely on licensing fees
from their proprietary software. Proprietary developers are excluded
from
the pool of GPL licensed software and thus are faced with competition
from a vast pool of cross-licensed software price fixed at “no charge”.
The effect of licensing free software in a targeted market is to
foreclose that particular market segment to commercial exploitation by
proprietary developers and thus eliminate them from competition.
With proprietary operating systems driven from the market (the
IBM Corp. is the largest computer technology company in the world),
IBM et al. can recoup profits in their ancillary markets that are
tailored
to complement the “free” Linux operating system.

Plaintiff Daniel Wallace (“Wallace”) is a physicist and computer
programmer seeking to market his own computer operating system
under a proprietary business model. Wallace brought this suit in federal
district court claiming antitrust injury from predatory pricing.

SUMMARY OF THE ARGUMENT

The district court erred when it granted IBM et al.’s motion to
dismiss pursuant to Rule Fed.R.Civ.P. 12(b)(6) because substantial case
law exists which suggests that Wallace can prevail on the merits of his
claim.

STANDARD OF REVIEW

Review of a district court’s grant of a motion to dismiss for failure
to state a claim under Fed.R.Civ.P. 12(b)(6) is de novo. Small v. Chao,
398

5

F.3d 894, 897 (7th Cir. 2005). The court accepts as true all
well-pleaded
allegations in the complaint and draws all reasonable inferences in the
plaintiff’s favor. Cler v. Ill. Educ. Ass’n, 423 F.3d 726, 729 (7th Cir.
2005).
Any written instrument attached to the complaint is considered a part of
the complaint. Zinermon v. Burch, 494 U.S. 113, 118 (1990).

ARGUMENT

Elements of the Claim

The Seventh Circuit has characterized the pleading standard in the
federal courts under Fed.R.Civ.P. 8(a)(2):

All that's required to state a claim in a complaint filed in federal
court is
a short statement in plain, that is ordinary, nonlegalistic English, of
the
legal claim. . . .The Courts keep reminding plaintiffs that they don't
have
to file long complaints, don't have to plead facts, don't have to plead
legal
theories.” Kirksey v. R.J. Reynolds Tobacco Co., 168 F.3d 1039 (7th Cir.
1999).

A claim under 15 U.S.C. §26 based on a violation of 15 U.S.C. §1
must allege three elements: (1) a contract, combination, or conspiracy;
(2) a resultant unreasonable restraint of trade in the relevant market;
and (3) an accompanying injury. Denny's Marina, Inc. v. Renfro Prods.,
Inc., 8 F.3d 1217, 1220 (7th Cir. 1993); MCM Partners, Inc. v. Andrews-
Bartlett & Assocs., 62 F.3d 967, fn 7 (7th Cir. 1995).

For claims brought under the Clayton Act §16, the “accompanying
injury” requirement was further refined by the Supreme Court in Cargill
Inc. v. Monfort of Colorado Inc., 479 U.S. 104, 113 (1986) (“[u]nder 16,
a
private plaintiff must allege threatened loss or damage ‘of the type the

6

antitrust laws were designed to prevent and that flows from that which
makes defendants' acts unlawful’ ”).

I. Contract, Combination, or Conspiracy

An intellectual property license is a contract. In re: Aimster
Copyright Litigation, 334 F.3d 643, 644 (7th Cir. 2003) (“If a breach of
contract (and a copyright license is just a type of contract) . . . ”);
see also
McCoy v. Mitsuboshi Cutlery, Inc., 67 F.3d 917, 920 (Fed. Cir. 1995)
(“Whether express or implied, a license is a contract ‘governed by
ordinary principles of state contract law’ ”.) An industry-wide license
such as the GPL may establish a prima facie case of conspiracy in
violation of the Sherman Act §1. See U. S. v. U. S. Gypsum Co. 333 U.S.
364, 389 (1948).

The GPL is a contract to make a contract . a recursive “metacontract”.
Although the GPL’s recursive term (Ex A (GPL), §2(b) at 2] that
purports to require all future third parties to use the same license
terms
is both contractually unenforceable 3 and preempted by 17 U.S.C. §3014,
these matters of law do not invalidate its role under antitrust
analysis.

Wallace’s Second Amended Complaint alleges:

3 “It goes without saying that a contract cannot bind a nonparty”. EEOC
V.
Waffle House, Inc., 534 U.S. 279, 294 (2002).

4 The term binding all third parties in future works creates a “right
against the
world” which subjects it to preemption. See ProCD Inc. v. Zeidenberg, 86
F.3d
1447, 1454 (7th Cir. 1996).

7

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.
The preceding facts and prevailing law clearly establish that
Wallace has alleged that a combination of businesses have conspired by
utilizing an express contractual agreement ((Ex A (GPL)].

II. Unreasonable Restraint of Trade in a Relevant Market

The stated purpose of the GPL license is to pool intellectual
property. (“[t]he 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.”) (Ex
A
(GPL) at 3)).

Case law holds that where pooling or cross licensing agreements5
are price-fixing arrangements, they will be subject to the per se rule,
United States v. New Wrinkle Inc., 342 U.S. 371, 377 (1952) (citing
United
States v. United States Gypsum Co., 333 U.S. 364 (1948) and United
States v. Line Material Co., 333 U.S. 287 (1948)). The Linux operating
system is distributed at the consumer level through various independent
distribution channels. The individual defendants IBM Corp., Red Hat Inc.
and Novell Inc. would be competitors in the market for computer
operating systems absent the use of the GPL license.

5 The GPL is a true cross-license among the owners of intellectual
property and
is thus easily distinguished from a blanket license, where multiple
independent
works such as musical recordings are licensed to a third party for
vending
efficiency.

8

The GPL fixes the license fee non-negotiably at “no charge” (Ex A
(GPL) §2(b) at 2). This fixes both the maximum (ceiling) and minimum
(floor) price limits at zero (no charge). This includes all software
patent
fees (“[W]e have made it clear that any patent must be licensed for
everyone's free use or not licensed at all.”) (Ex A (GPL) at 1).
Even if the collective software were viewed as being distributed in a
vertical agreement it would still be a per se violation. See Generac
Corp.
v. Caterpillar, Inc., 172 F.3d 971, 977 (7th Cir. 1999) (“Unlike
horizontal
agreements, vertical agreements are per se illegal under Sherman Act
sec. 1 only if they impose minimum price restraints”.)

Wallace’s Second Amended Complaint alleges:

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.

Wallace has certainly alleged that the defendants have engaged in
an unreasonable restraint of trade in the relevant market of computer
operating systems.

III. Accompanying Injury

Supreme Court case law holds that predatory pricing may inflict
antitrust injury on competitors (“Predatory pricing . . . is a practice
that
harms both competitors and competition.”) (Cargill, Inc. v. Monfort of
Colorado, Inc., 479 U.S. 104, 118 (1986)); (“[i]n the context of pricing

9

practices, only predatory pricing has the requisite anticompetitive
effect”)
(Atlantic Richfield Co. v. USA Petroleum Co., 495 U.S. 328, 339 (1990)).

The district court ruled, “Antitrust laws are for ‘the protection of
competition, not competitors.’ Brunswick Corp. v. Pueblo Bowl-o-Mat,
Inc.,
429 U.S. 477, 488 (1977)” (ENTRY ON DEFENDANTS’ MOTIONS TO
DISMISS at 3) but the Supreme Court clarified the Brunswick language
in Atlantic Richfield Co. v. USA Petroleum Co., 495 U.S. 328, 353
(1990):

The "antitrust laws were enacted for `the protection of competition, not
competitors.'" Ante, at 338 (quoting Brown Shoe Co. v. United States,
370 U.S. 294, 320 (1962)). This proposition - which is often used as a
test of whether a violation of law occurred - cannot be read to deny all
remedial actions by competitors. When competitors are injured by illicit
agreements among their rivals rather than by the free play of market
forces, the antitrust laws protect competitors precisely for the purpose
of
protecting competition.

The Ninth Circuit addressed competitor status in American Ad
Management, Inc. v. General Telephone Co. of California, 190 F.3d 1051,
1058 (9th Cir.1999):

Further, it is not the status as a consumer or competitor that confers
antitrust standing, but the relationship between the defendant's alleged
unlawful conduct and the resulting harm to the plaintiff. See Amaral,
102 F.3d at 1508 ("Losses a competitor suffers as a result of predatory
pricing is a form of antitrust injury because `predatory pricing has the
requisite anticompetitive effect' against competitors.") (quoting ARCO,
495 U.S. at 339)).

The leading Supreme Court case on predatory pricing under §1 of
the Sherman Act is Matsushita Elec. Industrial Co. v. Zenith Radio, 475
US 574 (1986). (“This is a Sherman Act 1 case . . .”) (fn 8). Predatory
pricing was defined in Matsushita. (“[(i)] pricing below the level
necessary

10

to sell their products, or (ii) pricing below some appropriate measure
of
cost.”) (fn 9).

Judge Richard Posner has acknowledged the heavy fixed costs
involved with the production of intellectual property:

Intellectual property is characterized by heavy fixed costs relative to
marginal costs. It is often very expensive to create, but once it is
created
the cost of making additional copies is low, dramatically so in the case
of
software, where it is only a slight overstatement to speak of marginal
cost
as zero. Antitrust in the New Economy, (Nov. 2000) U. Chicago Law &
Economics, 1, 3,

The Seventh Circuit examined a host of cost measures and found
pricing below long run incremental cost (LRIC) as one appropriate
indicator of predatory pricing. MCI Communications v. AT&T, 708 F.2d
1081, fn 59 (7th Cir. 1983).

Regardless of whether the measure of cost is LRIC or some other
appropriate formula, a final price of “no charge” leads to the absurd
conclusion that the “heavy fixed costs” for developing intellectual
property in computer programs are non-existent.

The Supreme Court held that it might be that only “direct
evidence” (Matsushita at fn 9) is sufficient to demonstrate below-cost
pricing. A contract term fixing licensing fees at no charge is certainly
“direct evidence” of pricing below long run incremental cost.

Wallace in his Second Amended Complaint alleged:

11

The Defendants' pooling and cross licensing of intellectual property
with
the described predatory price fixing scheme is foreclosing competition
in
the market for computer operating systems. Said predatory price-fixing
scheme prevents Plaintiff Daniel Wallace from marketing his own
computer operating system as a competitor.

Wallace has certainly alleged an injury “of the type the antitrust
laws were designed to prevent and that flows from that which makes
defendants’ acts unlawful.”

CONCLUSION

For the reasons above stated, the Court should reverse the order
dismissing plaintiff Daniel Wallace’s complaint and remand for further
proceedings.

Respectfully submitted,
___________________________________
Daniel Wallace, Pro Se
P.O. Box 572
New Palestine, IN 46163
317-861-6415
Dated: June 14, 2006

12

CERTIFICATE OF COMPLIANCE WITH F.R.A.P. 32(a)(7)

Pursuant to F.R.A.P. 32(a)(7)(C), the undersigned hereby certifies
that the foregoing opening brief of plaintiff-appellant Daniel Wallace,
pro
se, complies with the type-volume limitation in F.R.A.P. 32(a)(7)(B)(i)
because it contains less than 3500 words, excluding the parts of the
brief
exempted by F.R.A.P. 32(a)(7)(B)(iii).
___________________________________ Dated: June 14, 2006
Daniel Wallace, pro se
3874 S. Redbird Trail
New Palestine, IN 46163
(317) 861 6415

13

CIRCUIT RULE 31(e)(1) CERTIFICATION

The undersigned plaintiff-appellant Daniel Wallace, pro se, hereby
certifies that I have filed on CD-ROM pursuant to Circuit Rule 31(e), a
digital version of the foregoing brief and all of the appendix items
that are
available in non-scanned PDF format.
_____________________________________ Dated: June 14, 2006
Daniel Wallace, pro se
3874 S. Redbird Trail
New Palestine, IN 46163
(317) 861 6415

14

CERTIFICATE OF SERVICE

The undersigned plaintiff-appellant Daniel Wallace, pro se, hereby
certifies that I caused two copies of the foregoing opening brief with
included required short appendix to be served by first-class certified
mail, postage prepaid, on the following counsel:

Michael H. Gottschlich
BARNES & THORNBURG LLP
11 South Meridian Street
Indianapolis, IN 46204
(317) 231-7834

Curtis W. McCauley
ICE MILLER LLP
One American Square
Suite 3100
Indianapolis, IN 46282
(317) 236-2388
____________________________________ Dated: June 14, 2006
Daniel Wallace, pro se
3874 S. Redbird Trail
New Palestine, IN 46163
(317) 861 6415

15

CIRCUIT RULE 30(d) STATEMENT

Pursuant to Circuit Rule 30(d), plaintiff-appellant Daniel Wallace,
pro se, certifies that all materials required by Circuit Rules 30(a) and
(b)
are included in the appendices.
___________________________________ Dated: June 14, 2006
Daniel Wallace, pro se
3874 S. Redbird Trail
New Palestine, IN 46163
(317) 861 6415

16

REQUIRED SHORT
APPENDIX
TABLE OF CONTENTS OF REQUIRED SHORT APPENDIX
ENTRY ON DEFENDANTS’ MOTIONS TO DISMISS
entered on May 16, 2006
............................................................ Doc. 59
FINAL JUDGEMENT entered on May 16, 2006 ............................
Doc. 60
SECOND AMENDED COMPLAINT ...............................................
Doc. 48
GNU GENERAL PUBLIC LICENSE
.............................................. Doc. 26

regards,
alexander.