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Re: Intellectual Property II

From: Alexander Terekhov
Subject: Re: Intellectual Property II
Date: Thu, 09 Feb 2006 19:18:11 +0100

Wallace on predatory pricing:

Predatory pricing

The GPL establishes a predatory pricing scheme. Setting the maximum
price of intellectual property at “no charge” removes all motive to
compete. The Supreme Court has analyzed predatory pricing in a Sherman
Act § 1 civil action:
“…[T]his is a Sherman Act 1 case. For purposes of this case, it is
enough to note that respondents have not suffered an antitrust injury
unless petitioners conspired to drive respondents out of the relevant
markets by (i) pricing below the level necessary to sell their products,
or (ii) pricing below some appropriate measure of cost.” MATSUSHITA
ELEC. INDUSTRIAL CO. v. ZENITH RADIO, 475 U.S. 574 (1986) [fn8].

If we exam case (i) “pricing below the level necessary to sell their
products” the obvious result of the GPL is the destruction of interbrand
competition (see State Oil Co. v. Khan, supra) when the maximum price of
intellectual property is set at zero (“no charge”). New developers and
vendors of intellectual property cannot enter a market for which there
is no reward or incentive.
Not only competitors are harmed by the GPL scheme. Consumers lose
because a lack of competition removes not just product choice but
without competitive reward the incentive to improve product quality

When we analyze case (ii) “pricing below some appropriate measure of
cost” we see that a maximum price of zero for the intellectual property
in computer programs leads to an absurd result. In addition to the
intrinsic value ordained by Art. I, §8, cl. 8 of the Constitution, the
cost of creation of intellectual property in computer programs entails
the development costs of skilled programmers, new computer hardware,
communications costs and administrative overhead. Commercial computer
programs are not developed in a zero cost vacuum -- that is an absurd
proposition. A maximum price of zero is below any reasonable definition
of “appropriate measure of cost” concerning development and innovation
of intellectual property assets.
The only economic motive for using GPL licensed intellectual property in
a competitive market for computer operating systems is to destroy a
competitor who is striving to create positive value based in
intellectual property. The Supreme Court has addressed the practical
evidentiary burden for a predatory pricing claim:
“As a practical matter, it may be that only direct evidence of
below-cost pricing is sufficient to overcome the strong inference that
rational businesses would not enter into conspiracies such as this one”;

The GPL’s term 2(b) is without question direct evidence of a below-cost
pricing scheme. Commercial distributors of GPL licensed products
conspire to give away their assets in intellectual property and then
recoup losses by leveraging ancillary markets such as computer hardware
sales (computer hardware obviously requires an operating system),
software consulting fees, employee training programs and computer
maintenance services. (One uncharged co-conspirator, INTERNATIONAL
BUSINESS MACHINES CORPORATION, is the World’s largest computer hardware
and computing services corporation.)

The effect of the GPL license is to create a Marxist-Leninist model for
computer programs, where a vast pool of intellectual property is
collectively price fixed at “no charge” and thus removed from commercial
exploitation. In time, due to its recursive nature, the GPL’s pool of
price fixed intellectual property can grow to utterly destroy a targeted

It is not consumers that the GPL intends to benefit -- the goal is the
destruction of competition in the free market. The GPL license renders
U. S. Const., Art. I, §8, cl. 8 meaningless in the context of computer
programs containing copyrights and patents.

The defendants assert:

“The GPL expressly allows Defendants, and any other licensee, to charge
a fee to recover the variable or incremental costs associated with
distributing software licensed under the GPL: You may charge a fee for
the physical act of transferring a copy..”
Defendants Brief at 5.

Here, the defendants attempt to conflate the definition of intangible
copyright assets with the physical media in which a work is embodied:
“Ownership of a copyright, or of any of the exclusive rights under a
copyright, is distinct from ownership of any material object in which
the work is embodied. ..”;17 USC sec. 202.
The present claim is for price fixing in the relevant market of
intangible intellectual property assets in computer programs (the Linux
operating system) and not an action concerning tangible media or
“physical acts” involving the distribution of tangible media in which a
copyrighted work may be fixed.
The plaintiff’s complaint has certainly met the pleading requirements
expressed in PEGRAM. ET AL., and Denny's Marina, supra, by directly or
inferentially alleging the element of “an resultant unreasonable
restraint of trade in the relevant market”. 

He he, Marxist-Leninist.


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