27-08-2016, 10:05 AM
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Abstract:
Modern open source (“OS”) software projects are increasingly funded by commercial firms that expect to earn a profit from their investment. This is usually done by bundling OS software with proprietary goods like cell phones or services like tech support. This article asks how judges and policymakers should manage this emerging business phenomenon. It begins by examining how private companies have adapted traditional OS institutions in a commercial setting. It then analyzes how OS methods change companies’ willingness to invest in software. On the one hand, OS cost-sharing often leads to increased output and benefits to consumers. On the other, these benefits tend to be limited. This is because sharing guarantees that no OS company can offer consumers better software than any other OS company. This suppresses incentives to invest much as a formal cartel would. In theory, vigorous competition from non-OS companies can mitigate this effect and dramatically increase OS output. In practice, however, de facto cartelization usually makes the OS sector so profitable that relatively few proprietary companies compete. This poses a central challenge to judges and policymakers.
Antitrust law has long recognized that the benefits of R&D sharing frequently justify the accompanying cartel effect. This article argues that most commercial OS collaborations can similarly be organized in ways that satisfy the Rule of Reason. It also identifies two safe harbors where unavoidable cartel effects should normally be tolerated. That said, many OS licenses contain so-called “viral” clauses that require users who would prefer to develop proprietary products to join OS collaborations instead. These clauses aggravate the cartel effect by further reducing the number of companies willing to adopt proprietary business models. Although viral licenses may sometimes be needed to stabilize OS collaborations against free-riding, practical experience suggests that many viral licenses (notably including the GPL) are too broad to survive a Rule of Reason analysis. The article concludes by asking how policymakers can use taxes and government spending to mitigate the cartel effect and/or increase OS software production.
. Introduction
The nice thing about the open source (OS) phenomenon is that it changes faster than academics can study it. Ten years ago, most OS collaborations were organized around non-commercial, “fun” motives like altruism, hobbyist interest, and the like.1 By contrast, today’s OS projects are mostly commercial. Even if our theories and policy prescriptions were right ten years ago, then, the ground has shifted. This article asks how judges and policymakers should manage the new commercial OS. In the process it uncovers a paradox. On the one hand, OS lets companies share costs. This potentially gives them the power to create far more software than ever before. But, sharing also has a dark side: Since all OS companies offer consumers exactly the same software, no company can offer better software than its rivals. The result is a de facto cartel that suppresses competition and incentives to invest. Strangely, then, OS is self-limiting: Companies do share, but write far less code than they ought to.
This article untangles the paradox of OS sharing and asks what judges and policymakers can do to help OS reach its full potential. Section II sets the stage by describing the rise of commercial OS over the past ten years. It also profiles a leading commercial OS collaboration (The Eclipse Foundation) and describes the various design issues that face such organizations. Section III examines how companies make investment decisions in OS, closed source (“CS”), and mixed OS/CS markets. Section IV uses these ideas to analyze when OS collaborations should and should not be permitted under the Sherman Act. It argues that OS collaborations can usually write licenses that satisfy the Rule of Reason. It also proposes two safe harbors in which OS collaborations should be presumed to be pro -competitive. Section V examines the antitrust status of so-called “viral” licenses. It argues that very broad licenses (notably GPL) are unnecessarily restrictive and violate the Sherman Act. Section VI reviews how governments can use taxes, grants, and procurement policy to help OS sharing reach its full potential. Finally, Section VII presents a brief conclusion.
II. The Rise and Rise of Commercial Open Source
Academic understanding of OS has usually trailed the subject itself. When OS first appeared in the 1990s, scholars did little more than repeat the volunteers’ own narrative. In this telling, OS was a “movement” driven by psychological (“altruism”), political (“ideology”), or post-modern incentives (“the gift economy”) that defied conventional economic analysis.2 The more scholars studied OS, however, the less strange it seemed.