Wallace v. IBM is a 2006 decision of the United States Court of Appeals for the Seventh Circuit that rejected a claim that distributing Linux under the GNU General Public License (GPL) violates the federal antitrust laws. Daniel Wallace, who wanted to compete with Linux, alleged that IBM, Red Hat and Novell had conspired to eliminate competition in operating systems by making Linux available at an unbeatable price. The court affirmed the dismissal of his complaint, concluding that “the GPL and open-source software have nothing to fear from the antitrust laws”.[1]
Background
The court described IBM as offering Linux with many of its servers and contributing code to the Linux project, and Red Hat as selling media, manuals and support for installing and maintaining Linux. It noted that the GPL covers only the software, so distributors are free to charge for physical media and for assistance in making the software work.[1]
The dispute
Wallace said he would like to compete with Linux, either with a derivative work or with an operating system written from scratch, but that this was impossible while Linux and its derivatives were available free. He alleged that the defendants had conspired among themselves and with others, including the Free Software Foundation, and that the GPL itself was the conspiracy: a joint undertaking to undercut the price of any rival. The district court dismissed the complaint on the ground that Wallace, as a would-be producer rather than a consumer, did not suffer antitrust injury.[1]
Decision or outcome
The Seventh Circuit affirmed on a different basis. Writing for the panel, Judge Easterbrook accepted that producers may bring predatory pricing claims but held that Wallace’s theory failed on the merits:
- No predatory pricing. Predatory pricing requires low prices, the exit of rivals and then monopoly prices that recoup the losses. Wallace did not contend that GPL software would lead to monopoly prices, and the court said the GPL “keeps price low forever”. It added that proprietary operating systems continued to compete and grow in number.[1]
- No restraint of trade. The GPL is “a cooperative agreement that facilitates production of new derivative works”, and agreements that yield new products are lawful.[1]
- Not unlawful price fixing. Even if the GPL sets a price of zero, agreements setting maximum prices are judged under the rule of reason, and a “quick look” was enough to reject the claim because Wallace did not allege that Linux had a market share or posed a threat to consumer welfare that could lead to condemnation.[1]
Significance for software licensing and SAM practice
The decision is a United States appellate ruling that distributing software under a copyleft licence at no charge does not in itself violate the antitrust laws. It also describes the commercial model around GPL software that licence managers see in practice: the software is licensed without a royalty, and vendors charge for media, subscriptions and support.[1]
The opinion summarises the GPL as prohibiting charges for derivative works. The text of GPL version 2 is more specific: it states that a licensee “may charge a fee for the physical act of transferring a copy” and may offer warranty protection for a fee, while requiring that a modified work be licensed “at no charge to all third parties” under the GPL.[2] For the licence conditions in detail, see GNU GPL, LGPL and AGPL obligations.
Lessons learned
- Copyleft is not an antitrust problem in itself. The court rejected the theory that the GPL is a price-fixing conspiracy.[1]
- Budget for services, not licences. For GPL software, costs usually arise from media, support and subscriptions; the court noted these are not covered by the GPL.[1] The GPL itself allows a fee for transferring a copy and for warranty protection.[2]
- Use the licence text. Short summaries of the GPL, including the one in this judgment, can omit conditions that matter for compliance.[2]