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MS Helps Me Explain "Antitrust Injury" - Wallace v. IBM
Monday, July 04 2005 @ 03:44 AM EDT

Microsoft's Steve Ballmer just has admitted publicly that cost of acquisition for Linux is less than for Windows:

Because open-source products can, in general, be downloaded for free, Microsoft has to compete against them by drawing attention to the "total cost of ownership." It must make the case that, all things considered, Windows applications are cheaper over the long term.

Open source "is the first competitor we've ever had where our cost of acquisition is higher than their cost of acquisition," said Microsoft CEO Steve Ballmer. "Usually, we're able to come in and say, 'We're cheaper and better'...Here we have to say, 'lower total cost of ownership--and better.'"

In short, when they give you that lower *total* cost of ownership, watch out for the fine print. It's just a marketing strategy, as opposed to the simple truth.

But note something that will help you understand a feature of IBM's argument in its Motion to Dismiss Daniel Wallace's antitrust lawsuit regarding the GPL. In that motion, IBM said this:

Second, the alleged injury is not the type of injury Congress intended to protect against in passing the antitrust laws, so plaintiff cannot show the requisite antitrust injury. Plaintiff's alleged harm flows only from additional competition in the marketplace, which is not the sort of harm with which the antitrust laws are concerned. Plaintiff therefore has no standing to bring his claims and his case should be dismissed. . . .

The plaintiff alleges he is a competitor who may be harmed in the future because of increased competition. This is not the type of harm the antitrust laws were designed to prevent, and the complaint should therefore be dismissed with prejudice. . . .

B. Plaintiff Lacks Antitrust Injury. In addition to showing a nexus between the alleged anticompetitive acts and the alleged harm, a plaintiff must also show an antitrust injury that is, the type of injury the antitrust laws were designed to prevent. It is now axiomatic that "[t]he antitrust laws . . . were enacted for 'the protection of competition, not competitors.'" Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 488 (1977) (citation omitted).

The required showing of antitrust injury applies to the per se analysis as well as the rule of reason. In Atlantic Richfield Co. v. USA Petroleum Co., 495 U.S. 328 (1990), the Supreme Court held that a competitor who alleged only that he had lost sales and profits due to his competitor's vertical maximum price fixing scheme lacked the requisite antitrust injury to sue under the antitrust laws, regardless of whether a per se violation had been alleged. . . .

The injury alleged by the plaintiff in this case is not the requisite "antitrust injury." He does not allege an injury to competition or to the market, but only to himself as a competitor or potential competitor. His alleged lack of "opportunity" for him to "earn future revenue" is focused on his own income, not any injury to competition or consumers. Common sense dictates that a "licensing scheme" that requires consumers pay no more than zero dollars to use and copy the programs under the License would benefit consumers, not harm them, and any "injury" flowing from there could not be an "antitrust injury." Plaintiff apparently alleges that he cannot compete because he is not able to earn income by licensing to others any modifications he made to a program he obtained for free under the License, given that all such modifications must also be licensed at no charge. This allegation also clearly fails the antitrust injury test. Here, even assuming plaintiff charged for distribution or servicing of the program (acts not prohibited by the License), plaintiff's potential customers would benefit from lower prices for licensing the modified program (i.e., no cost for the actual use of the program) compared with the price they would have to pay if plaintiff were permitted to charge for the license. Even if plaintiff were "injured" by his inability to license his modifications for a fee, it would not be the type of injury to competition Congress envisioned for the antitrust laws.

The article that quoted Mr. Ballmer provides a real world example of what IBM was describing in legal terms. The CNET News.com article, typically entitled "Microsoft looks to extinguish LAMP," says that the combination of Linux, Apache, MySQL, and scripting lanuages like PHP, Perl, and Python (LAMP), is eating Microsoft's lunch, so it is planning to "heap features into its low-end products" and build a "comprehensive set of tools -- spanning development to management" to try to make their server more attractive. So, class, does that hurt consumers, or benefit them?

Do you see now what IBM's lawyers meant in their motion to dismiss Daniel Wallace's odd antitrust lawsuit regarding the GPL, when they pointed out that there was no antitrust injury, because competition from GPL code is benefiting the consumer, not damaging them?

I'm sure Daniel Wallace will be relieved to hear that the company has spelled out how well it can compete against a product that can be downloaded for free. Its senior vice president of server applications tells the world how in the same article:

Having products that are engineered to work together--something open-source competitors cannot do--will ultimately make Microsoft products easier to run and more cost-effective over time, said Paul Flessner, senior vice president of server applications.

"You can compete with an acquisition price of zero if, over the lifetime, you have a lower total cost of ownership. I think it will be very difficult for them to emulate, honestly, given their economic models," Flessner said. "I feel good about the low-end assault from freeware."

Memo to the court hearing Mr. Wallace's antitrust complaint: the chief "victim" of the GPL, according to Mr. Wallace, says it has no trouble competing with GPL products. Just so you know.

Of course, Mr. Flessner is wrong about open source being unable to make applications work together. But let's let him find out the hard way, shall we? Meanwhile, the headline says it all, to me. It is actually Microsoft trying to "extinguish" its competition. The LAMP stack doesn't care about competition and isn't trying to extinguish Microsoft. It's a by-product of some very fine code written by some mighty ethical people up against code from a company nobody much trusts any more.

Speaking of consumers, I learned something about Microsoft's new low-end XP for the third world. You can only open three windows at a time. Can you imagine? And Wallace thinks GPL code is harming consumers? He should take a look at that. How stupid is that, to artificially hobble your code so that people paying full price don't feel ripped off? What other motive can there be? And who in the world will choose that over GNU/Linux systems, where you are the master of your own computer and can do anything and everything, whatever you please, with no Mother-May-I?


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