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GPL passes bizarro world anti-trust test

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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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