In the

United States Court of Appeals

For the Seventh Circuit ____________

No. 06-2454

DANIEL WALLACE,

Plaintiff-Appellant,

v.

INTERNATIONAL BUSINESS MACHINES

CORPORATION; RED HAT, INC.; and

NOVELL, INC.,

Defendants-Appellees.

____________

Appeal from the United States District Court for the

Southern District of Indiana, Indianapolis Division.

No. 1:05-cv-678 RLY-VSS—Richard L. Young, Judge.

____________

SUBMITTED OCTOBER 26, 2006—DECIDED NOVEMBER 9, 2006

____________

Before EASTERBROOK, KANNE, and EVANS, Circuit Judges.

EASTERBROOK, Circuit Judge. Does the provision of

copyrighted software under the GNU General Public

License (“GPL”) violate the federal antitrust laws? Authors

who distribute their works under this license, devised by

the Free Software Foundation, Inc., authorize not only

copying but also the creation of derivative works—and the

license prohibits charging for the derivative work. People

may make and distribute derivative works if and only if

they come under the same license terms as the original

work. Thus the GPL propagates from user to user and

revision to revision: neither the original author, nor any
2 No. 06-2454

creator of a revised or improved version, may charge for the

software or allow any successor to charge. Copyright law,

usually the basis of limiting reproduction in order to collect

a fee, ensures that open-source software remains free: any

attempt to sell a derivative work will violate the copyright

laws, even if the improver has not accepted the GPL. The

Free Software Foundation calls the result “copyleft.”

One prominent example of free, open-source software

is the Linux operating system, a derivative of the Unix

operating system written by AT&T in the 1960s and now

available without cost. (Unix® is a trademark of The Open

Group, but the source code to many variants of AT&T’s

work is freely available.) Linux is one of many modern

derivatives of Unix—which is not itself under the GPL.

Thus Apple Computer, which uses the Berkeley Software

Distribution variant of Unix as the foundation for the Mac

OS X operating system, is entitled to charge for its software. Linux, initially the work of Linus Torvalds, is maintained by a large open-source community. International

Business Machines offers Linux with many of its servers, or

customers can install it themselves. IBM has contributed

code to the Linux project and furnishes this derivative work

to anyone else with an interest. Red Hat, Inc., sells media

(such as DVDs), manuals, and support for the installation

and maintenance of Linux. The GPL covers only the

software; people are free to charge for the physical media on

which it comes and for assistance in making it work. Paper

manuals, and the time of knowledgeable people who service

and support an installation, thus are the most expensive

part of using Linux.

Daniel Wallace would like to compete with Linux—either

by offering a derivative work or by writing an operating

system from scratch—but maintains that this is impossible as long as Linux and its derivatives are available for

free. He contends that IBM, Red Hat, and Novell have

conspired among themselves and with others (including the
No. 06-2454 3

Free Software Foundation) to eliminate competition in the

operating system market by making Linux available at an

unbeatable price. Under the GPL, which passes from user

to improver to user, Linux and all software that incorporates any of its source code will be free forever, and nothing

could be a more effective deterrent to competition, Wallace

maintains. The GPL is the conspiracy as Wallace sees

things; it is a joint undertaking among users and creators

of derivative works to undercut the price of any potential

rival. But the district judge dismissed the complaint, ruling

that Wallace does not suffer antitrust injury, see Brunswick

Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477 (1977),

because he is a would-be producer rather than a consumer.

Although antitrust law serves the interests of consumers

rather than producers, the Supreme Court has permitted

producers to initiate predatory-pricing litigation. See

Brooke Group Ltd. v. Brown & Williamson Tobacco Corp.,

509 U.S. 209 (1993); Matsushita Electric Industrial Co. v.

Zenith Radio Corp., 475 U.S. 574 (1986). This does not

assist Williams, however, because his legal theory is

faulty substantively.

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 (or cartel of survivors)

recoups losses incurred during the low-price period. When

exit does not occur, or recoupment is improbable even if

some producers give up the market, there is no antitrust

problem. So the Court held in both Brooke Group and

Matsushita. See also, e.g., R.J. Reynolds Tobacco Co. v.

Cigarettes Cheaper!, 462 F.3d 690 (7th Cir. 2006); Schor v.

Abbott Laboratories, 457 F.3d 608 (7th Cir. 2006). Either

prices will stay low (reflecting efficient production and

enduring benefits to consumers) or the practice will be selfdeterring (because the predator loses more during the lowprice period than it gains later, and consumers are
4 No. 06-2454

net beneficiaries). When monopoly does not ensue, low

prices remain—and the goal of antitrust law is to use

rivalry to keep prices low for consumers’ benefit. Employing

antitrust law to drive prices up would turn the Sherman

Act on its head.

Wallace does not contend that software available for

free under the GPL will lead to monopoly prices in the

future. How could it, when the GPL keeps price low forever and precludes the reduction of output that is essential to monopoly? “[I]f a manufacturer cannot make itself

better off by injuring consumers through lower output and

higher prices, there is no role for antitrust law to play.”

Schor, 457 F.3d at 612.

Software that is not maintained and improved eventually becomes obsolete, and the lack of reward may reduce

the resources devoted to maintenance and improvement

of Linux and other open-source projects. If that occurs,

however, then proprietary software will enter or gain

market share. People willingly pay for quality software even

when they can get free (but imperfect) substitutes. Open

Office is a free, open-source suite of word processor, spreadsheet and presentation software, but the proprietary Microsoft Office has many more users. Gimp is a

free, open-source image editor, but the proprietary Adobe

Photoshop enjoys the lion’s share of the market. Likewise

there is a flourishing market in legal treatises and other

materials, plus reference databases such as LEXIS and

Westlaw, even though courts give away their work (this

opinion, for example, is not covered by copyright and

may be downloaded from the court’s web site and copied

without charge). And so it is with operating systems. Many

more people use Microsoft Windows, Apple OS X, or Sun

Solaris than use Linux. IBM, which includes Linux with

servers, sells mainframes and supercomputers that run

proprietary operating systems. The number of proprietary

operating systems is growing, not shrinking, so competition
No. 06-2454 5

in this market continues quite apart from the fact that the

GPL ensures the future availability of Linux and other

Unix offshoots.

It does not help to characterize people who accept the

GPL as “conspirators.” Although the antitrust laws forbid

conspiracies “in restraint of trade,” 15 U.S.C. §1, §26, the

GPL does not restrain trade. It is a cooperative agreement that facilitates production of new derivative works,

and agreements that yield new products that would not

arise through unilateral action are lawful. See, e.g., Broadcast Music, Inc. v. Columbia Broadcasting System, Inc., 441

U.S. 1 (1979); Polk Bros., Inc. v. Forest City Enterprises,

Inc., 776 F.2d 185 (7th Cir. 1985). Cf. Texaco Inc. v. Dagher,

126 S. Ct. 1276 (2006).

Nor does it help to call the GPL “price fixing.” Although

it sets a price of zero, agreements to set maximum prices

usually assist consumers and therefore are evaluated under

the Rule of Reason. See State Oil Co. v. Khan, 522 U.S. 3

(1997). Intellectual property can be used without being used

up; the marginal cost of an additional user is zero (costs of

media and paper to one side), so once a piece of intellectual

property exists the efficient price of an extra copy is zero,

for that is where price equals marginal cost. Copyright and

patent laws give authors a right to charge more, so that

they can recover their fixed costs (and thus promote

innovation), but they do not require authors to charge more.

No more does antitrust law require higher prices. Linux

and other open-source projects have been able to cover their

fixed costs through donations of time; as long as that

remains true, it would reduce efficiency and consumers’

welfare to force the authors to levy a charge on each new

user.

Wallace does not contend that Linux has such a large

market share, or poses such a threat to consumers’ welfare

in the long run, that evaluation under the Rule of Reason
6 No. 06-2454

could lead to condemnation. A “quick look” is all that’s

needed to reject Wallace’s claim. See, e.g., California Dental

Association v. FTC, 526 U.S. 756 (1999); National Collegiate

Athletic Ass’n v. University of Oklahoma, 468 U.S. 85

(1984); Ball Memorial Hospital, Inc. v. Mutual Hospital

Insurance, Inc., 784 F.2d 1325 (7th Cir. 1986) (unless a firm

with market power can increase its profits by curtailing

output, the practice is lawful under the Rule of Reason).

The GPL and open-source software have nothing to fear

from the antitrust laws.

AFFIRMED

A true Copy:

Teste: 

 ________________________________

Clerk of the United States Court of

Appeals for the Seventh Circuit 

USCA-02-C-0072—11-9-06