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News

FSFE objects to claims of 'predatory pricing' in Free Software

më:

To:
European Commission
DG Competition
B-1049 Brussels
Belgium

According to reports in specialist online media, the so-called "FairSearch" coalition - comprised of Microsoft, Nokia, Oracle, and a number of online service providers - argues, in its latest submission to the European Commission, that the free-of-charge distribution of Android, a Free Software[1] mobile operating system developed by Google, constitutes predatory pricing. Suggesting that the distribution of Free Software free of charge is harmful to competition is both wrong in substance, and dangerous to competition and innovation.

We urge the Commission to consider the facts properly before accepting FairSearch's allegations at face value. We are writing to you today to explain how the distribution of Free Software, whether gratis or for a fee, promotes competition, rather than damaging it.

Free Software Foundation Europe (FSFE) is an independent, charitable non-profit organisation dedicated to the promotion of Free Software. FSFE maintains that the freedoms to use, study, share and improve software are critical to ensure equal participation in the information age. We work to create general understanding and support for software freedom in politics, law and society-at-large. We also promote the development of technologies, such as the GNU/Linux operating system, that deliver these freedoms to all participants in digital society. In pursuit of these goals, we have a long history of active involvement in competition proceedings that affect Free Software.

Free Software is about freedom, not price

The "Free" in Free Software refers to freedom, not price. Specifically, Free Software offers users the following freedoms:

  1. to use the program without restrictions;
  2. to study the program's source code, and understand how it works;
  3. to share the program with others, either gratis or for a fee;
  4. to improve the program, and share the improvements.

Taken together, these four freedoms turn the Free Software model into a powerful and disruptive force for competition. Free Software has considerably contributed breaking up the long-standing monopolies built up by makers of non-free software such as Microsoft.

In many sectors, Free Software programs have long been either the leading applications, or the most powerful competitors. This includes web servers [2] web browsing (Firefox), office productivity (LibreOffice, OpenOffice), and server operating systems. 93% of the 500 super computers worldwide run on Free Software operating systems.

Free Software is the norm for makers of embedded devices, such as "smart" TVs, DSL routers, and cars' on-board computers, to name just a few. Today's leading web companies, such as Facebook, Amazon and Google, rely heavily on Free Software to build their offerings. Free Software also powers a plethora of startups and competitors with architectures and service models which offer alternatives to the established providers.

Trend in mobile and elsewhere is irreversibly towards Free Software

According to publicly available sources, the substance of FairSearch's claim is that by "giving away Android for free" Google undercuts the ability of its competitors in the mobile operating system to recoup investments in competing with "Google's dominant mobile platform."

FSFE strongly objects to this characterization: Free Software is a highly efficient way of producing and distributing software, and selling licenses is just one among many possible ways to monetise software.

Android is a software platform built around the Linux kernel and Java, forked into Dalvik, thanks to the fact that both Java and the kernel are available under Free Software licenses. Anybody can take Android and turn it into a better and freer distribution with few or no ties to Google, as long as the source code is made available, as it is. Replicant and CyanogenMod are just two notable examples, both of which are currently installed in millions of devices. Facebook's adoption of Android for its own purposes shows how the platform is actually open, so much that a competitor can ship an alternative GUI which is basically oriented to serving a competitor's purposes.

The Commission, with regard to Java, has already found the value of a non fragmented platform to be high, and recognizes strong incentives to prevent its fragmentation [3]. If anything, Android has attracted criticism because its licensing conditions and openness favour fragmentation, against Google's own interests. Fragmentation is a "threat" connected to the freedom of forking. In a proprietary setting the tight control over copyright, trademarks and patents makes it easy to avoid fragmentation. Conversely, in a Free Software environment, fragmentation is avoided by consensus and leadership on merit, and sometimes through the use of trademarks (Red Hat, Mozilla). Linux, the kernel common to the Android and GNU/Linux operating systems, has so far escaped fragmentation not because such a thing would be impossible or prohibited – it certainly is not -, but because it would be pointless. In a platform, ensuring the widest compatibility and high degree of standardization is a constant concern of any project, providing a strong incentive to avoid abuses of the community and a constrant pressure on the leader(s) of the project to proceed by consensus.[4]

In a powerful illustration of how the Free Software model enables competition, we note that all recent additions to the list of mobile operating systems are largely Free Software. Though Android devices currently make up around 70% of mobile phones and tablets sold, several other Free Software mobile operating systems based on the Linux kernel are setting out to to compete with Android. Examples include Firefox OS (backed by the Mozilla Foundation), Jolla (from the ashes of Maemo, a Nokia project terminated after the company's strategic alignment with Microsoft), Tizen (backed by Samsung, Intel and various telecom providers such as Vodafone and NTT Docomo), and UbuntuMobile (backed by Canonical).

Gratis distribution of code has nothing to do with predatory pricing

In its submission, the FairSearch coalition claims that Android's gratis availability makes it difficult or impossible for others to compete in the market for mobile operating system.

However, selling software licenses has never been an important strategy in the mobile market. Blackberry maker RIM basically sold devices and server-side software and services to the enterprise sector. Apple subsidized its proprietary iOS with the sale of hardware and services, both by Apple and by third parties, taking a significant cut of the revenue for products sold through its iTunes online store. Nokia tried for a time to sustain two different operating systems, both of which were eventually released as Free Software (Symbian and Maemo, then renamed Meego, now forked by Jolla into SailFish). Only Microsoft has maintained an Independent Software Vendor position, mostly leveraging and marketing the integration with its network services.

It would therefore seem that the only conceivable motive for the FairSearch coalition's complaint is that the existince of a number of Free Software mobile operating systems, including Android, makes it difficult for Microsoft to replicate this business model in the mobile space. FairSearch is essentially asking the European Commission to favour one business model over another. This is exactly the opposite of what an antitrust authority should aim for in order to maintain a competitive market.

FSFE has consistently taken the stance that proprietary licensing is an outdated and inefficient system of producing software. From our point of view, Google has no incentives or means to monopolize the smartphone operating system market, simply because there is no market for proprietary operating system licenses.

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", a practice that the Commission has already discussed in past activities. There is no "below cost" distribution in Free Software, because the price which market participants set for copies of mobile operating systems in these circumstances is precisely zero.

Software is easy to copy at near-zero cost. In economic terms, this means that there is originally no scarcity in software. Such scarcity can only be introduced articificially, with proprietary licensing being the most frequently used way to do so.

Conversely, Free Software creates a commons, in which everyone can participate, but which noone can monopolise. Free Software thus creates wealth and new growth opportunities for a wide range of companies and business models. An example of this is Red Hat, a company whose yearly turnover reached USD 1.3 billion, entirely by providing services around the free GNU/Linux operating system. Android has arguably created a competitive advantage for Google; but, contrary to Microsoft, Google's focus is not on software and monopolizing platforms, but on services, delivered on whichever platform the user happens to be using. Conversely, some analysts believe that Microsoft now makes more money from Android than it does from Windows operating systems on mobile devices, after the company engaged in an aggressive patent licensing campaign towards makers of Android devices.

Google's competitive advantage is essentially ephemeral: the only way to stay ahead of the competition in Free Software is to provide better products or services, and to win users' trust. Barriers to entry for competitors are extremely low. An example is that the platform allows installing alternative marketplace (or "app stores"). The Free Software Foundations promote a "Free Your Android" campaign where they solicit adoption of an alternative marketplace called F-Droid where only Free Software applications are provided.

Conclusion

With its submission, the FairSearch coalition seems to assume that European regulators are unaware of the developments in the software market over the past decade. Rather than highlighting a genuine risk to competition in the mobile market, the FairSearch submission gives the impression that Microsoft - a company convicted of anti-competitive behaviour in high-profile lawsuits on three continents - 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. We respectfully beg to differ.

The nature of Android as a commons makes it very valuable to OEMs, precisely because Google can only control it through leadership, not through an iron fist and lock-in, as is the case with proprietary alternatives. This very fact should be considered a source of strong competitive pressure.

We recommend that the European Commission should dismiss the application without even opening a formal case. In any event, should a statement of objections be issued, it should avoid to contain any reference to the Free Software licensing as a source of competitive concerns. Indeed, the Free Software nature of Android should be considered per se a powerful tool to reduce barriers to entry and to enhance competition.

At FSFE, we will continue to work with the European Commission on leveraging Free Software in order to create and maintain competition in the marketplace. As experts and stakeholders, we stand ready to support the Commission in all matters relating to Free Software.

Sincerely,

Karsten Gerloff, President

Carlo Piana, General Counsel

Free Software Foundation Europe

[1] Often referred to as “open source”. “Free Software” is the original and more accurate name which reflects all the aspects of the same phenomenon.

[2] As of June 2013, fully 68% active websites run on the Free Software server programs Apache and nginx.

[3] Decision in Case No COMP/M.5529 – ORACLE/ SUN MICROSYSTEMS, paragraph 935.

[4] Decision in Case No COMP/M.5529 – ORACLE/ SUN MICROSYSTEMS, paragraph 655.