Open Source Code Survives Antitrust Challenge

November 2006

In the first reported U.S. case to address, albeit indirectly, the validity of open source licenses, the United States Court of Appeals for the Seventh Circuit held in Wallace v. International Business Machines Corp., 2006 U.S. App. LEXIS 27699 (Nov. 9, 2006), that the GNU General Public License ("GPL") does not violate federal antitrust laws.The plaintiff, Daniel Wallace, wanted to compete with Linux by offering a derivative work of the Linux operating system or by writing an operating system from scratch. The essence of his argument was that IBM, Red Hat, Novell and others had engaged in a "conspiracy" to keep the price of open source software at zero, thereby giving Wallace no room to compete on the basis of price.The Seventh Circuit made short shrift of Wallace's argument, holding that while the federal antitrust laws prohibit parties from conspiring to raise prices, they do not prohibit agreements to lower prices to the benefit of consumers. The only exception to this rule is where the price setters enjoy such a large market share or pose such a threat to consumers' welfare in the long run that the practice constitutes predatory pricing. Predatory pricing occurs when low prices are followed by the exit of producers who can no longer make a profit, which is in turn followed by monopoly (increased) prices.In this case, the court held that due to the number of players in the open source market, there was no danger of predatory pricing. According to the court, applying antitrust law to squelch open source software "would turn the Sherman Act on its head." Id. at *5. The court characterized the GPL as a "cooperative agreement that facilitates production of new derivative works" rather than a conspiracy in restraint of trade. Id. at *7. To the contrary, the court noted that the number of proprietary operating systems is growing rather than diminishing, which leads to the conclusion that the GPL has not had an adverse impact on competition.

Generally speaking, the GPL prohibits charging for a derivative work that is based on the original open source code. Referring to copyright law, a derivative work is defined as something that is based "in substantial part" on the original work. Under the GPL, anyone who creates a modified version of the open source code must make that source code publicly available. In the context of software, the GPL has been likened to a virus in that it "propagates from user to user and revision to revision." Id. at *2.

Furthermore, neither the original author nor the creator of the modified version of the software may charge for it. For this reason, the GPL is often referred to as "copyleft" rather than "copyright," which affords the author of the original work certain exclusive rights. Thus, if a client is engaged in a software development project and wants the end product to be proprietary, the client would be well advised not to include any GPL code in the code base.

In upholding the legality of the GPL, at least as far as the federal antitrust laws are concerned, the Seventh Circuit stated: "Copyright and patent laws give authors a right to charge more, but they do not require authors to charge more." In short, the court did not view the GPL as a threat to either free competition or the open market.


Amicable photo of Toni

Antoinette M. Tease, P.L.L.C.