Re: EASTERBROOK's "quick look" on the GPL and Wallace's claim

[Alexander Terekhov]

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Free software still legal - judge

GPL passes bizarro world anti-trust test

By Kevin Fayle in San Francisco ? More by this author

Published Friday 10th November 2006 17:35 GMT

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Silicon Justice Daniel Wallace certainly gets points for effort and
determination.

After suing the Free Software Foundation (FSF) in 2005 for price-fixing
and finally losing earlier this year, Wallace filed an action against
IBM, Novell and Red Hat alleging that the companies' distribution of
Linux under the GNU General Public License (GPL) violated US federal
antitrust law. Not to be deterred by the dismissal of this new case
after the district court judge found that he didn't have a leg to stand
on, Wallace kept fighting the free-software "conspirators" right up to
the Court of Appeals for the Seventh Circuit. That court affirmed the
dismissal this week, after finding that Wallace did indeed lack even the
slightest shred of a case against the companies.

At first glance, Wallace's main argument is intriguing. After it sinks
in, however, its appeal only lingers for extreme literalists or
Microsoft executives.

The argument goes something like this: since the source code for Linux
is free for everyone, and since the companies involved have all
contributed to the source under the GPL, the companies have formed a
conspiracy to engage in predatory pricing with the aim of forcing
smaller developers out of the software market. Essentially, by giving
software away, they have stifled competition by creating an environment
where small developers can't compete with Linux's price-point. The GPL
functions as the conspiracy in this strange world, since it is a common
effort to pull the price-rug out from under any potential competitors.

Let's start right there, eh? The Seventh Circuit panel's opinion, penned
by the prolific and learned Chief Judge Frank Easterbrook, smacks this
reasoning down with a lingering noise of fingers-on-face that makes the
spine tingle. Judge Easterbrook sees this logic as an attempt to "turn
the Sherman Act on its head" by using antitrust law to drive prices up
by preventing people or companies from distributing free (as in speech)
software.

Remember that the goal of antitrust law is to encourage competition in
order to keep prices low for the benefit of consumers. Thus, if prices
remain at the lowest level possible through competition, there is no
antitrust violation. In US antitrust law, a predatory pricing scheme
involves three steps: first, there is a period of artificially low
prices; next, competitors fall out of the market; finally, the predatory
company achieves monopoly pricing. If no monopoly arises, then low
prices remain.

Since the prices in question couldn't get much lower, Easterbrook
argues, it is clear that the companies have not engaged in predatory
pricing. Software distributed under the GPL could never result in
monopoly prices, Easterbrook claims, since the GPL keeps prices low
forever and encourages an increase in output by making source code easy
to build on. In fact, according to the judge's logic, the GPL is a
weapon against monopoly (read: Microsoft), not a means to achieve it.

Moreover, Easterbrook writes, proprietary software still has a huge
market share, and many people continue to choose proprietary software
over alternatives available under the GPL. The number of proprietary
OS's continues to increase despite the fact that the GPL is encouraging
the "dumping" of free software products on the market. Since competition
remains healthy, according to Easterbrook, the low prices enabled by the
GPL do not constitute predatory pricing.

Easterbrook also took exception to Wallace's labeling of people and
companies who utilize the GPL as "conspirators." Antitrust law prohibits
conspiracies with "restraint of trade" as their goal. In the case of the
GPL, however, Easterbrook states that the GPL doesn't restrain trade in
the slightest. Instead, he argues, it is a cooperative agreement that
encourages new products and derivative inventions. And even though these
new products might be clunky, difficult to use and inaccessible to all
but the geekiest of geeks, such a cooperative is not illegal.

Wallace also chose to renew his price-fixing argument here, which fared
no better with Chief Judge Easterbrook than it did with the judge in the
FSF case. While the GPL does, literally, fix the price of the source
code at zero, Easterbrook states, maximum prices are usually a good
thing for consumers. As such, they are evaluated under the Rule of
Reason.

The Rule of Reason is an antitrust rule that, in essence, states that
only unreasonable restraints on trade are subject to antitrust laws. A
maximum price is, technically, a restraint on trade because it restricts
price opportunities. Since intellectual property law gives creators the
right, but not the obligation, to charge for their property in order to
recover fixed costs, however, and since open-source software creators
have been able to cover their fixed costs through donations of time, it
would be ineffecient and harmful to consumers to force developers to
charge for their source code. Thus, free software is perfectly
reasonable, and survives this sort of antitrust scrutiny.

In summation, Chief Judge Easterbrook assuages any remaining fears that
the open-source community might have by definitively stating that "[t]he
GPL and open-source software have nothing to fear from the antitrust
laws."

And not even the entry of antitrust-rogue Microsoft into the open-source
game can screw that one up. ®

Kevin Fayle is an attorney, web editor and writer in San Francisco. He
keeps a close eye on IP and International Law issues.
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He he.

regards,
alexander.