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Article Excerpt
TABLE OF CONTENTS
INTRODUCTION I. THE GPL's PRICING RESTRAINT SHOULD BE EVALUATED UNDER THE RULE OF REASON A. The GPL's Pricing Restraint Is Needed to Allow the Free Exchange of Software B. Freely Exchanged Software Is a New Product Allowing Software Evolution II. A PRICE OF NOTHING ON SUBSEQUENT DISTRIBUTIONS DEMONSTRATES THAT THE GOAL IS NOT TO RESTRAIN COMPETITION A. Broadcast Music: A Framework for Evaluating Nothing B. Applying the Broadcast Music Framework to the GPL III. A PRICE OF NOTHING ON FUTURE ACCESS RIGHTS PROTECTS COMPETITION ON PRODUCT QUALITY A. Free Software Displaces Priced Software Only under Competitive Circumstances B. Access to Source Code Reduces Anticompetitive Network Effects CONCLUSION
[T]he Linux philosophy is "laugh in the face of danger."
Oops. Wrong one. "Do it yourself." That's it. (1)
INTRODUCTION
In 1991, Linus Torvalds released the first version of the Linux operating system. (2) Like many other beneficiaries of the subsequent dot-com boom, Torvalds worked on a limited budget. Clad in a bathrobe, clattering away on a computer purchased on credit, subsisting on a diet of pretzels and dry pasta, (3) hiding in a tiny room that was outfitted with thick black shades designed to block out Finland's summer sun, (4) Torvalds programmed Linux.
Like some other beneficiaries of the subsequent dot-com boom, Torvalds created a product that is now used by millions. He owns stock options worth seven figures. (5) Computer industry giants, such as IBM, Novell, and Sun, have invested time and energy in his work. (6) But unlike many other beneficiaries of the subsequent dot-com boom, Torvalds gave Linux away for free. (7)
For free? Well, not exactly. Linux was released (8) under a software license known as the GNU General Public License ("GPL"). (9) The GPL allows users to give copies of the software to friends or family--in fact, to the world at large. (10) And while most commercial software is released in the form of object code--instructions to a computer, consisting of unintelligible strings of ones and zeros (11)--software released under the GPL must give the user access to what is known as source code: (12) the human readable translation of those instructions. (13) For the user who just wants to run the software, only object code is required. (14) But source code availability may indirectly help even typical users. The GPL allows anyone to use the more easily decipherable source code to modify the software and redistribute those modifications to the world at large. (15) These modifications could range from minor bug fixes to the reuse of source code in an entirely different project.
But the GPL has a catch: it strictly lays out the terms on which future distributions can be made. To be covered by the license, a user who gives out modified code must release the entire work under the GPL, and must include notice of the terms of the license for all subsequent distributors. (16) The developer distributing the modified code is free to charge any price she wants to transfer the program to the next user. (17) But because the distribution must be made under the GPL, the developer must give that user the right to transfer the program to anyone, at no charge. (18) Once the software has been transferred from the original owner, the market cost will tend toward the cost of distribution. (19)
The GPL has outgrown its humble origins. It started out as a vehicle by which individuals could swap software they had personally written. (20) But these days, computer giants IBM, Sun, and Novell, among others, have incorporated software released under the GPL into their business plans. (21) Red Hat, IBM, and Novell all offer similar Linux services, (22) but use code supplied to each other under the GPL. (23) The GPL now facilitates cooperative research among competing software developers.
When competitors collaborate, antitrust law raises its head. (24) Collaborations are, of course, allowed. (25) Sometimes, these alliances result in new products that could not have been made available without cooperation. (26) But competitors can also collude to boost illicit profit through behaviors that restrain fair market competition. Agreements that facilitate divvying up the ill-gotten swag of a cartel give rise to treble damages and jail time. (27)
Under Section One of the Sherman Act, (28) the Supreme Court has excoriated competitors who conspire to fix prices. (29) In United States v. Line Material Co., (30) several companies held patents that were collectively needed to manufacture a particular fuse. (31) The patent holders granted one another the rights to sublicense the other's patents to third parties, but bound licensing parties to charge certain prices on the fuse. (32) Thus, no company could produce the fuse without charging a particular price. (33) Notwithstanding limited exemptions granted to some holders of patents, (34) the Supreme Court held that "when patentees join in an agreement ... to maintain prices on their several products, that agreement ... is unlawful per se under the Sherman Act." (35)
Under Line Material, (36) competitors cannot exchange licenses that require fixed prices to be charged. (37) Now imagine that two competing software manufacturers, CompuTrust and MonopoSoft, want to pool some of their intellectual resources--in particular, software code. Because the code is protected by copyright, the two competitors must grant each other rights to the code. They choose to do so under a hypothetical license called the General Fixing License ("GFL"). Now comes the wrongful division of swag: the GFL requires that anyone who uses the resulting code must "cause any work that you distribute or publish, that in whole or in part contains or is derived from the Program or any part thereof, to be licensed as a whole for two thousand dollars." (38)
By exchanging software under licenses that control the price charged for subsequent licenses, the two competitors can fix uniform prices on their competing products. Because CompuTrust's final software product contains MonopoSoft code, CompuTrust must abide by the terms of the GEL. (39) In order for end users to legitimately use CompuTrust's product, they must have permission to run not only CompuTrust's code, but also MonopoSoft's. Thus, CompuTrust can sell a license to its complete product only if it can grant sublicenses to third parties from MonopoSoft. The GFL gives CompuTrust permission to grant those sublicenses, but only if it charges its customers two grand. (40) Following the same reasoning, MonopoSoft will also be bound to charge two thousand bucks. Presto: the GFL fixes prices, and is per se illegal. (41)
The per se rule against price-fixing applies regardless of the price being fixed. (42) Although two thousand dollars may be clearly excessive, the GFL would be per se illegal even if it fixed a lower price. Two thousand dollars would be as illegal as two hundred dollars; two hundred dollars would be as illegal as two dollars; and two dollars would be as illegal as two cents. (43) When it comes down to it, even zero prices have run afoul of antitrust law. (44)
Section 2(b) of the GPL restrains prices on sublicenses in a way that is equivalent to the zero-price GFL. (45) Specifically, it requires that any derivative work be licensed to third parties "at no charge." (46) But while it is easy to imagine CompuTrust and MonopoSoft greedily raking in profits from above-market pricing under the GFL, it's harder to contemplate Linux developers rubbing their hands in glee as they rack up sale after sale at the prices of zero, nothing, and no charge. There is something different about nothing.
Over the last few years, some generalized worries about competition and the GPL have surfaced in law review articles, (47) one lawsuit, (48) and discussions in the Linux community. (49) Another recently filed lawsuit alleges more specifically that software manufacturers releasing software under the GPL have engaged in horizontal price-fixing. (50) Responses to these worries have ranged from dismissive to comprehensive. (51) While some of the lengthier responses touch on general worries about competition, and even mention potential pricing restraints in the GPL, they gloss over worries about price-fixing. (52) And while the Open Source Development Lab (53) has warned Linux developers not to discuss prices amongst themselves, it falls to note that the GPL itself explicitly mentions a price of zero. (54) While the fate of Linux and the GPL is interesting to legal academia, (55) the practice of sharing software expressed in the GPL is beginning to spread to other fields. (56) Uncertainties about antitrust issues, if not addressed, may hamper the wider adoption of public sharing in these other fields. (57)
This Note argues that Section 2(b) of the GPL, which requires that sublicenses be granted at no charge, is a permissible price restraint. The justification for this is ... nothing. Or, rather: a price of nothing on future distributions can and should be distinguished from non-zero prices. Although the vast majority of price-fixing is per se illegal, restraints on price that are necessary to achieve important procompetitive goals may be evaluated under the less restrictive rule of reason, (58) which weighs the anticompetitive consequences of a practice against the procompetitive results. (59) Part I demonstrates that GPL-based software could not be freely shared and modified without Section 2(b)'s restriction on price. The import of this is that Section 2(b)'s restraint on price is ancillary to goals that serve competition, and thus a per se rule should not be applied.
The prohibition on price-fixing arises out of two separate concerns about competition. First, antitrust law seeks to protect consumers from higher prices fixed by cartels rather than by a competitive market. (60) Second, antitrust law relies on market competition to produce higher-quality products. (61) The remainder of this Note demonstrates that the use of the GPL is consistent with the goals of antitrust law. Establishing that the restraint is ancillary to other considerations does not determine whether the agreement violates antitrust law; instead, the restraint's effect on competition must be evaluated. (62)
Part II claims that the worry regarding higher prices is alleviated by fixing a price of nothing on subsequent licenses. This price matters because a price of nothing distinguishes valid pricing schemes, designed to reduce high transaction costs associated with software licensing, from invalid schemes designed to reap supracompetitive cartel profits.
Part III addresses the concern about competition in software quality. In particular, Part III contends that the GPL's pricing restraint will result in lower quality software only when consumers straightforwardly choose lower prices over higher quality. Furthermore, the GPL reduces barriers to entry, even for software manufacturers who may not adopt the GPL. The GPL accomplishes this by charging nothing: access to source code allows others to adopt or mimic GPL software without significant investments.
While prior analysis has concluded that the GPL escapes antitrust scrutiny, it has failed to articulate how the GPL's pricing restraint should be evaluated. (63) This Note concludes that when it comes to the GPL, something is great about nothing.
I. THE GPL's PRICING RESTRAINT SHOULD BE EVALUATED UNDER THE RULE OF REASON
Software is like sex; it's better when it's free. (64)
This Part argues that the GPL's pricing restraint should be evaluated under the rule of reason instead of a per se prohibition. While a per se prohibition would immediately invalidate the GPL's pricing restraint, the rule of reason would allow a balancing of the restraint's effects--both positive and negative--on competition. (65)
While antitrust jurisprudence has repeatedly held that restraints fixing prices are per se violations of the Sherman Antitrust Act, (66) this requirement has not been read to absolutely bar all price-fixing activity. In Broadcast Music, Inc. v. Columbia Broadcasting System, Inc., (67) the U.S. Supreme Court warned against literal application of the price-fixing doctrine....
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