Wallace case FAQ for dummies v1.7

[Alexander Terekhov]

(This is regular posting. Acknowledgments: aim_here2002, Linonut.)


Q: Bzzzzt. What the fuck ... !?

A: The context is property. Intangible intellectual property (rights
granted under IP license). IP goods. Property in short.


Q: Bzzzzt, but according to RMS, "intellectual property... is a mirage,
which appears to have a coherent existence only because the term
suggests it does." So bzzzzt, what the fuck ... !?

A: Well, well, well. But according to one FTC commissioner (and an
antitrust attorney), it is not quite a mirage. "One fundamental question
in this area is whether intellectual property is like other property for
purposes of antitrust analysis. In considering this question, it seems
to me that we should keep in mind some obvious principles. First,
intellectual property is property, that is to say, it belongs to someone
who has the right to exclude others from using it without his or her
consent. Second, intellectual property has attributes that distinguish
it from personal property and real property -- that is why we have a
different word for it. For example, the enforcement of an owner's
exclusive right to use physical property may be accomplished more
easily, as a practical matter, than enforcement of an exclusive
intellectual property right. Antitrust enforcers should certainly remain
open to considering new ideas about how the rights associated with
intellectual property can and should be distinguished from the ownership
of tangible property in the analysis of antitrust liability. But for
now, it seems fair to say that for antitrust purposes, intellectual
property is generally treated like other forms of property."


Q: Bzzzzt. No, can't be. RMS says that "All intellectual property 
rights are just licenses granted by society because it was thought, 
rightly or wrongly, that society as a whole would benefit by granting 
them. But in any particular situation, we have to ask: are we really 
better off granting such license? What kind of act are we licensing a 
person to do?"

A: Lunatic RMS is simply confusing reality with his dreams of the GNU 
Republic. Both in the GNU Manifesto (quoted above) and in the GNU GPL 
he's talking about legal regime in his wonderful GNU Republic (in a 
nearby alternative universe, his moronic dreams aside for a moment) 
where First Sale is nonexistent, IP is not property (it belongs to 
state), and where distributing software under any "license" other than 
the GPL (which is akin to a lottery or other permits from state, and 
hence it is, of course, not a contract or a property right), or "GPL 
compatible" license (but that's for extra regulation fee, I gather), 
is a felony under GNU law. But in this reality, intellectual property 
is property (see Stewart v. Abend, 495 U.S. 207, 219 (1990), 
Ruckelshaus v. Monsanto Co., 467 U.S. 986 (1984), etc.), and IP 
licenses are contracts (see citations in Wallace's brief, the link is 
below).


(Side note)

Apropos legal regime in the GNU Republic... GNUtians believe that 
taking two separate and independent computer program works (separate 
and independent under copyright law, according to the AFC test) and 
combining them together in a compilation (see 17 USC 101) creates a 
"derived work" (see the GNU Copyleft Act) akin to (quoting GNUtian 
Alan Mackenzie) "embryo which is derived from the egg and sperm." 
Accordingly, GNUtians believe that linking is akin to sex without 
condoms (and that it is not oral or anal). 

This issue might actually come up in Wallace case (after appeal) 
when Wallace will have an opportunity to invite defendants to 
elaborate on "derived from", "sections", and "intent is to exercise 
the right to control the distribution of derivative or collective 
works based on".

(End of side note)


Q: What price restrictions?

A: Property price restrictions.


Q: What 'price'? Define 'price'.

A: Cost to obtain EXISTING property on buyer's side. Price is fixed 
at zero in the case of property locked in the GNU GPL pool (e.g. 
Guh-NÜ-slash-Linux, the GPL part of it).


Q: The GPL allows charging fees for binaries, only source code must be 
available under the GPL at no charge. So what's the problem?

A: You need to contact IBM's legal counsel and set them straight before 
they further embarrass themselves: "65. Among the "further restrictions" 
that the GPL and LGPL do not permit are royalties or licensing fees (Ex. 
27 §§ 2, 3; Ex. 26 §§ 2, 4) (although fees can be collected for "the 
physical act of transferring a copy" of the code or for warranty 
protection). (Ex. 27 § 1; Ex. 26 § 1.) If modified works or machine-
readable versions of GPL- or LGPL-licensed software are distributed, 
they must be licensed "at no charge to all third parties under the 
terms of this License." (Ex. 27 § 2 (emphasis added); Ex. 26 § 2; see 
also Ex. 27 § 3; Ex. 26 § 4.)" --- REDACTED MEMORANDUM IN SUPPORT OF 
IBM'S MOTION FOR PARTIAL SUMMARY JUDGMENT in SCO v. IBM (see Groklaw). 


Q: Doesn't Wallace understand that the GPL allows people to charge for 
installation, support and maintenance if they want to (and the customer 
is prepared to pay), just not for the software itself? How about razor 
and blades business model?

A: It appears that Wallace does understand that "installation, support 
and maintenance" are not intellectual property and that the GPL has 
nothing to say about these things. He claims that the GPL price fixes 
the license fees for *intellectual property*. His claim is that 
"installation, support and maintenance" are a recoupment strategy, and 
that *intellectual property* is price fixed at predatory levels. These 
facts can be gleaned by reading his appeal brief. As for razor and 
blades business model, even Wikipedia admits that "... there may be 
suspicions of the existence of cartels and violation of antitrust 
legislation. In some cases, notably auto parts in the United States, 
legislation exists specifically to prevent this business model from 
existing." (en.wikipedia.org/wiki/Razor_and_blades_business_model)
Wallace is on record claiming that "In the course of vending his 
competing operating system, the plaintiff has experienced firsthand 
the deleterious market effect of the GPL license when used by a 
cartel of competitors." So razor and blades argument misses the point.


Q: Bzzzzt, but "marginal cost" ... so what the fuck ... !?

A: The good being distributed under the GPL is Intellectual Property
(rights under copyright and patent laws). The cost of creation of that
good is not zero. As for "marginal cost"... "Professor John Duffy of GW
Law School has published "The Marginal Cost Controversy in Intellectual
Property" in the Winter 2004 issue of the University of Chicago Law
Review. (Available through WestLaw with a credit card.) It is a useful
piece. A common refrain of the copyleft is that the marginal cost of a
digital copy of an intellectual product is zero, so, therefore,
"economics teaches us" that it should be priced at zero. This is a
fallacy, as discussed in Marginalized, akin to the logic of the ancient
paradox that proves that Achilles can never catch the tortoise." (Go
google it.)

Q: A GPL coder is not compensated?

A: That plus administration overhead, etc. Cost required to create NEW
property (GPL derivative works, additions to GPL collective works) on
seller's side. The GPL fixes the price below cost. Wallace is claiming
antitrust injury from predatory pricing (pricing below cost) and says
that the whole scheme is in violation of Sherman Act 1.


Q: Okay, but how about explaining who Wallace is, who he's suing, what
gives him the right to sue? (question from aim_here2002)

A: Please visit <www.terekhov.de/Wallace-case.htm>. This is "de novo"
review.


Q: And the chances are... ?

A: The chances are really good. Judge Young dismissed for "failure to
allege anticompetitive effect". But Wallace has federal Judge Tinder 
on record. When Judge Tindere was not totally ``drunk'' (only partially,
``drunk'' in a sense of having a mental malfunction so to speak), he found 
that Plaintiff’s Third Amended Complaint States a Claim Upon Which Relief 
can be Granted and that Plaintiff’s Allegations Sufficiently Set Forth a 
Violation of the Rule of Reason (but, unfortunately, being in a partially 
drunk condition, he was fooled by the FSF to believe that Plaintiff Has Not 
Alleged Antitrust Injury). Judge Tinder ruled: "To establish a Section 1 
claim under the rule of reason test, a plaintiff must prove that “(1) 
that the defendants contracted, combined, or conspired among each other; 
(2) that the combination or conspiracy produced adverse, anti-competitive 
effects within relevant product and geographic markets; (3) that the 
objects of and the conduct pursuant to that contract or conspiracy were 
illegal; and (4) that the plaintiffs were injured as a proximate result 
of that conspiracy.” Tunis Bros. Co. v. Ford Motor Co., 952 F.2d 715, 722 
(3d Cir. 1991). In this case, it appears that Mr. Wallace has made the 
necessary allegations of FSF’s unlawful contract and conduct. In his Third 
Amended Complaint, he specifically alleges that FSF conspired with others, 
including International Business Machines Corporation, Red Hat Inc. and 
Novell Inc., to control the price of available software within a defined 
market through the GPL. Primarily at issue in FSF’s motion is whether Mr. 
Wallace has adequately alleged that the GPL had a resulting anticompetitive 
effect.

[... reduction in IP output under GPL price-dumping conspiracy ...]

This may be considered anticompetitive effect, and it certainly can be 
inferred from what Mr. Wallace alleges in his Third Amended Complaint. 
Therefore, this court finds that the Third Amended Complaint states a 
claim for violation of Section 1 of the Sherman Act, under the rule of 
reason doctrine." 


Q: What if Wallace loses on appeal as well? 

A: Then you might enjoy Wallace Reloaded (so to speak) featuring
Schwarzenegger, I suppose. "The California Unfair Practices Act, Bus. &
Prof. Code § 17043, prohibits selling a product below its cost for the
purpose of injuring competitors or destroying competition. Bus. & Prof.
Code § 17044 prohibits selling products as "loss leaders," which § 17030
defines as selling below cost for the purpose of inducing the purchase
of other merchandise, misleading or deceiving purchasers, or diverting
business from competitors. Cost is statutorily defined for production as
including "the cost of raw materials, labor and all overhead expenses of
the producer." Bus. & Prof. § 17026." This might enlighten you: "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."
(www.gnu.org/gnu/manifesto.html)


Q: Okay, what if the GPL falls as Wallace claims?

A: Uh oh. To begin with, it will set the [L]GPL'd code free (will make
it available for appropriation by Microsoft, etc.). Certain types of
unlawful licensing arrangements (such as antitrust violations) are
deemed misuse and render rights under patent and/or copyright
unenforceable in court of law until the misuse is purged (and since it's
pretty much impossible to purge the [L]GPL'd stuff from the net... you
got it). Another rather interesting aspect is that if the GPL falls as
Wallace claims, everyone (because of the Pinkerton Doctrine) who
contributed GPL'd code that was used in commerce against a proprietary
competitor will be subject to 15 USC 15: "(a) Amount of recovery;
prejudgment interest  Except as provided in subsection (b) of this
section, any person who shall be injured in his business or property by
reason of anything forbidden in the antitrust laws may sue therefor in
any district court of the United States in the district in which the
defendant resides or is found or has an agent, without respect to the
amount in controversy, and shall recover threefold the damages by him
sustained, and the cost of suit, including a reasonable attorney’s fee.
The court may award under this section, pursuant to a motion by such
person promptly made, simple interest on actual damages for the period
beginning on the date of service of such person’s pleading setting forth
a claim under the antitrust laws and ending on the date of judgment, or
for any shorter period therein, if the court finds that the award of
such interest for such period is just in the circumstances. In
determining whether an award of interest under this section for any
period is just in the circumstances, the court shall ...". The GPL is a
price-fixing (not monopolizing) claim. IBM, Red Hat etc. will owe
Microsoft (for the last four years) for treble damages for the server
market share that GNU/Linux has held (as Windows substitute... as for
proprietary Unices... recall that "GNU is Not Unix"... <chuckles>). So 
it appears that, unfortunately, making money wise, Gates & Co. have 
been one step ahead of IBM ever since MS-DOS. 

regards,
alexander.