Microsoft and Nokia protest "price predation" and play at being prey.
Does no-cost software harm consumers? The FairSearch coalition thinks so, at least when it comes to Google: They say Google engages in predatory pricing when it distributes Android – a Linux-based mobile operating system – without charge. Recently, FSFE (Free Software Foundation Europe) responded in a letter to the European Commission, labeling as "wrong" and "dangerous" FairSearch’s claims, and saying further:
The predatory pricing theory proposed by FairSearch is plainly unsuitable to describe a market where there is no price, and a product that, being Free Software, can literally be taken by anybody and "forked" ... . There is no "below cost" distribution in Free Software, because the price which market participants set ... in these circumstances is precisely zero.
What is the FairSearch coalition? Its complaint against Google describes FairSearch as "an international coalition of 17 specialized search and technology companies." Those companies include Microsoft, Nokia, and Oracle, which say they have joined forces to protect competition, transparency and innovation to benefit consumers.
Google has a different take:
FairSearch claims to represent consumers’ best interests, but it consists of companies who either compete directly with Google or don’t like where their websites appear in Google’s search results. No consumers or consumer groups are members of FairSearch.
The Verge states a similar view:
Beneath the sheen of do-gooder ideology, FairSearch can be most charitably described as a Google watchdog. It seeks to fan the flames of disapproval where they’ve started organically, originate them where they haven’t, and generally disseminate negativity toward the Google brand. Think of it as a PR firm working to destroy rather than create goodwill.
These anti-FOSS price predation claims might bring to mind another case: Remember Daniel Wallace? He sued Red Hat, IBM, and Novell, claiming the companies conspired via the GPL to hold Linux’s price at zero. Mr. Wallace’s suit was summarily dismissed.
Affirming the dismissal, the Seventh Circuit’s Judge Easterbrook noted:
[T]he GPL keeps price low forever and precludes the reduction of output that is essential to monopoly... . The GPL and open-source software have nothing to fear from the antitrust laws.
While this result lacks the power of precedent before the European Commission, it does highlight a basic problem for price predation claims against no-cost software: Low prices are, according to Judge Easterbrook, the "goal of antitrust law," and using antitrust law to raise prices would turn the law "on its head." Similar thinking should prevail at the European Commission when they consider Microsoft and Nokia’s complaints.
So what is predatory pricing? Judge Easterbrook summarizes the theory:
Predatory pricing is a three-stage process: Low prices, followed by the exit of producers who can no longer make a profit, followed by monopoly prices. The law’s worry is the final period in which the survivor ... recoups losses incurred during the low-price period.
Practically, however, predatory pricing turns out to be controversial and difficult to establish. This is particularly true for predatory pricing claims against free software. An alleged predator is highly unlikely to recoup "losses" caused by free distribution, since free software’s four freedoms allow competitors liberal entry into the market. Moreover, free software licenses (including GPLv2 and Apache v2) arm these competitors with the power to redistribute royalty-free, making any alleged effort at monopoly pricing unsustainable.
With these points in mind, one suspects that, far from championing competition and consumers, Microsoft and Nokia have instead merely launched the latest attack on free software in a decades-long war (a war that is the subject of an upcoming documentary by former Microsoft developer Keith Curtis,). As FSFE’s letter stated:
Rather than highlighting a genuine risk to competition in the mobile market, the FairSearch submission gives the impression that Microsoft ... is attempting to turn back the clock. The company is essentially arguing that the Commission should protect its outdated business model in the mobile sector against a more effective disruptor.
None of this is to say Microsoft and Nokia’s complaint should be taken lightly. The European Commission has the power to impose enormous fines, which Microsoft knows well since the Commission fined Microsoft over $2 billion for anti-competitive conduct. Also, a Commission finding that distributing a Linux-based operating system without charge is anti-competitive could undermine Linux and free software and harm consumers of free software technologies.
Of course, Microsoft’s complaint is a bit hypocritical, since the Department of Justice and 20 states accused them of predatory pricing when they distributed Internet Explorer without charge. Recall their response at the time: That a market participant – Netscape - had already set the price for browser technology at zero. Does that sound familiar?
And by their accusations, Nokia displays ignorance about its own history with free and open source software. Speaking about Google at a recent legal conference, Nokia’s head of competition law wondered aloud: "If you make a multi-billion-dollar investment as Google has done in the Android operating system, why would you just give it away?" Presumably Google sought the same benefits as Nokia when Nokia open-sourced its own mobile operating system - Symbian.
The outcome of FairSearch’s request for a Commission investigation is not yet known. What is known is that the benefits of free software - high quality, high value, customizable, low lock-in technologies cooperatively developed, tested, distributed, and improved by an efficient global-scale community marshaled using the latest collaborative Internet tools – ring true with consumers. And these benefits, along with the disruptive business model that brings them to fruition, should identify free software distributors not as price predators, but as embodiments of "maverick firms," a species of competitor that authorities in both the US and the EU seek to protect, not punish.
Hopefully the Commission will view free software the way consumers do and reject FairSearch's complaint.