“The GPL and open-source software have nothing to fear from the antitrust laws,” the U.S. Court of Appeals for the Seventh Circuit announced in a recent decision, Wallace v. International Business Machines Corp., that binds all federal courts in Illinois, Indiana and Wisconsin.

Daniel Wallace is a would-be creator of a computer operating system who contends that it is impossible for him to make a commercially viable system because of the existence of the free Linux system. Linux is a type of open-source software, distributed pursuant to the GNU General Public License (“GPL”), which, in essence, permits users to access the software source code freely, to copy the software for free, and to make modifications of or derivative works from the software without authorization – provided that users do not charge others for the derivative works. IBM, Red Hat and Novell (together, the “IBM Defendants”) are three companies that propagate Linux in various ways. (Linus Torvalds of Finland began the worldwide collaborative project to develop Linux in the early 1990s.)

In 2005, Wallace sued the IBM Defendants in a federal trial court in Indianapolis, IN, alleging that they violated the antitrust laws by conspiring among themselves and with the nonprofit Free Software Foundation to eliminate competition in the computer operating systems market “by making Linux available at an unbeatable price.” (Wallace also brought a similar lawsuit against the Free Software Foundation directly. That case has been dismissed and is not the focus of this article.)

The trial judge dismissed Wallace’s price-fixing conspiracy case against the IBM Defendants.

Wallace appealed the ruling to the Seventh Circuit, which affirmed the lower court’s decision in a short opinion.

The Seventh Circuit noted that people who accept the GPL are not thereby conspiring to restrain trade, because the GPL “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” (emphasis added).

The Seventh Circuit also held that the IBM Defendants could not be engaged in unlawful predatory pricing, i.e., setting a low price for Linux, thereby driving competitors out of the market for computer operating systems, and then instituting a monopoly price for Linux. Pursuant to the GPL’s restrictions, which prevail in perpetuity, the price of Linux will remain at virtually zero forever. The IBM Defendants cannot expect to institute monopoly pricing for Linux down the road. Consumers are not harmed in such a scenario, the appellate court reasoned.

The Seventh Circuit further observed that Wallace failed to allege that Linux has a large or growing share of the computer operating systems market, and is thereby exploiting market power and crowding out alternative systems. On the contrary, “[t]he number of proprietary operating systems is growing, not shrinking, so competition in this market continues quite apart from the fact that the GPL ensures the future availability of Linux,” according to the appellate court.

It has been suggested in some quarters that the for-profit companies that support Linux have done so as an attack specifically on Microsoft, whose proprietary Windows computer operating system has nearly monopolized that market for years. Wallace was unable to convince the Seventh Circuit that the IBM Defendants had engaged in unlawful activity. Instead, the appellate court gave a ringing endorsement to the “free software” movement.