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[ox-en] Open Source Software Survives Antitrust Challenge

From: Sylvia Caras <Sylvia.Caras>

The US Seventh Circuit, known for jurists steeped in theories of law
and economics, has weighed in definitively against antitrust liability
for open source software.[PHONE NUMBER REMOVED].html

Open Source Software Survives Antitrust Challenge
By Kevin Fayle,

Does giving something away violate the Sherman Act's prohibition on
predatory pricing? Does encouraging a price of zero constitute
price-fixing? No on both counts, according to a recent Seventh Circuit
decision in an antitrust suit against companies distributing software
under the GNU Public License (GPL).

The suit, filed by an independent software developer against IBM, Red
Hat and Novell, alleged that the GPL constitutes a conspiracy to drive
out potential competitors of the Linux operating system. By fixing the
price at zero, he argued, the companies conspired to drive out
competition in the software market by distributing Linux at a price
other developers couldn't beat - free.

Well, not exactly free . . . but "free." The GPL was created by the Free
Software Foundation (FSF) with the aim of making quality software whose
source code was open to future developers so that they could make
improvements to the software, or even derivative products. The only
catch was that any improvements or new products had to be distributed
under the GPL, with open source code.

The FSF calls this take on free software "free as in speech" rather than
"free as in beer." Software developers can charge for their particular
distribution of the "free" software, along with support and other
services, but the fact that the source code is freely available acts to
keep the prices that companies charge for these goods and services low.

Perhaps an example will help: Budweiser sells a lot of beer, and they
don't just freely hand out the exact recipe for their flagship lager. In
software jargon, their beer is closed source. Thus, even if someone
decided to give away Budweiser without charging for it, it would not be
"free" in the open source sense. An open source beer would be one whose
recipe was freely distributed, and open to all to brew and improve upon.
Even if the resulting product was sold for a profit, the beer would
still be "free" according to the FSF.

(Lest you laugh at this example, check out this site, where a group of
students at the IT-University in Copenhagen actually did establish an
open source beer!)

The lawsuit argued that the defendants, by distributing Linux under the
GPL, had engaged in predatory pricing, formed a conspiracy to further a
restraint on trade, and fixed the price for software at zero. Chief
Judge Easterbrook, writing for the court, dismissed these arguments and
reassured free software advocates that "[t]he GPL and open-source
software have nothing to fear from the antitrust laws."

The first to fall was plaintiff's predatory pricing argument. Predatory
pricing typically involves three stages from the point of view of
American antitrust law: first, there is a period of artificially low
prices; next, producers who cannot make a profit competing with these
low prices drop out of the market; finally, a monopoly ensues, and
prices rise to monopoly levels. If monopoly does not occur, low prices
remain, and vice versa.

Using antitrust law to raise prices, as the plaintiff essentially asked
the court to do, would "turn the Sherman Act on its head," according to
Judge Easterbrook. Since the GPL precludes the reduction in output and
increase in price that would injure consumers, there is no role for
antitrust law to play. The GPL actually results in increased output and
the lowest possible prices, thus antitrust law has no interest in
breaking up the GPL's "conspiracy," Judge Easterbrook held.

Indeed, the plaintiff was mistaken to suggest that the GPL and the
companies putting out software under the license constitute a
conspiracy. Antitrust law prohibits conspiracies that have restraints on
trade as their purpose. Yet, the GPL does not restrain trade. Instead,
Easterbrook states, the GPL acts as a cooperative agreement that
facilitates the production of new software, and, as such, is perfectly

Finally, the Chief Judge dismissed the plaintiff's price-fixing
argument. The GPL does fix the maximum price for the software (the
source code, not the actual physical distribution) at zero, but maximum
prices are generally beneficial for consumers and courts therefore
analyze them under the Rule of Reason. This rule states, basically, that
a restraint on trade will only violate antitrust law if it is unreasonable.

Copyright law, Judge Easterbrook writes, gives creators the right (but
not the obligation) to charge for their works in order to recover their
fixed costs. In the open source community, where fixed costs are covered
by donations of time by volunteer coders, it would be inefficient and
detrimental to consumers to force developers to charge for the software.
Thus, the maximum price that the GPL sets for software satisfies the
Rule of Reason.

With that, the Seventh Circuit affirmed the dismissal of plaintiff's
lawsuit for failure to state an antitrust claim. This decision will have
profound importance in the future as Microsoft moves into the
open-source world through its agreement with Novell to share its patents
and increase interoperability between Windows and Novell's Suse Linux.
It also means that major players who decide to release previously
proprietary software, such as Sun's Java, under the GPL won't have to
fear antitrust lawsuits from angry software developers.

At least not in the Seventh Circuit. As open source software continues
to grow in importance, this type of lawsuit might spring up in other
jurisdictions. In the unlikely event that another circuit comes out with
a different interpretation of antitrust law and free software, the
Supreme Court would have to weigh in before the issue is truly resolved.
Since the Seventh Circuit, known for jurists steeped in theories of law
and economics, has weighed in so definitively against antitrust
liability for open source software, however, it's take on the matter is
likely to travel to other jurisdictions and govern any future lawsuits.
Contact: projekt

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