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

From: Alexander Terekhov
Subject: Re: EASTERBROOK's "quick look" on the GPL and Wallace's claim
Date: Sat, 11 Nov 2006 16:10:41 +0100

Alexander Terekhov wrote:
> ------
> 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
> Get The Register's new weekly newsletter for senior IT managers
> delivered to your inbox, click here.
> 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.
> ------
> He he.


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