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FSFE Writes Letter to EU Commission, Objecting to FairSearch's Claims Against Google of 'Predatory Pricing' ~pj Update
Monday, July 29 2013 @ 09:12 AM EDT

Free Software Foundation Europe has just announced it has written a letter to the European Commission, objecting to FairSearch's claim that free distribution of Android software by Google is "predatory pricing":
The so-called "FairSearch" coalition is essentially asking the European Commission to favour a restrictive business model over a liberal one. This is exactly the opposite of what competition regulators should do in order to achieve a fair and open market.

"Free Software is not about price, it's about liberty, a guarantee of competition and vendor independence. Asking to cripple Free Software in order to allow proprietary vendors to sell their locked-down systems is just absurd" says Carlo Piana, FSFE's General Counsel. "The most substantial threat to competition in the mobile space today are software patents, and we have repeatedly urged antitrust authorities to address this problem," he adds.

FSFE asks the European Commission to dismiss the "FairSearch" coalition's unfounded claims regarding predatory pricing, and not make them part of whatever steps it decides to take in response to the group's filing.

They tell the Commission that they are writing to "explain how the distribution of Free Software, whether gratis or for a fee, promotes competition, rather than damaging it." For example, it's not true that Google compels Android-based phones to exclusively use its own app store, and by releasing the code for free, Google is actually enabling others to easily compete with Google:
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.
The letter points out that most of the innovation going on in mobiles is in Free Software:
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).
You can write your own letter to the EU Commission, whether you are a company, a FOSS project, or an individual. I hope you will. I know some of you have already, because you've been nice enough to let me know, and so I know some beautiful letters have already been sent. But numbers matter. Write to:
comp-greffe-antitrust at ec.europa.eu


The FairSearch claim, they write, is illogical:
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.
Here's the announcement in their press release:
In a recent antitrust submission to the European Commission, a Microsoft-led coalition falsely claimed that the distribution of Free Software free of charge hurts competition. FSFE has written a letter to the European Commission's competition authorities to refute this claim, and make it clear that Free Software is critical for an open, competitive IT market.

In its letter, FSFE urges the Commission to consider the facts properly before accepting these allegations at face value. "Free Software is a boon for humankind. The only thing that it is dangerous to is Microsoft's hopelessly outdated, restrictive business model," says Karsten Gerloff, FSFE's president.

The so-called "FairSearch" coalition is essentially asking the European Commission to favour a restrictive business model over a liberal one. This is exactly the opposite of what competition regulators should do in order to achieve a fair and open market.

"Free Software is not about price, it's about liberty, a guarantee of competition and vendor independence. Asking to cripple Free Software in order to allow proprietary vendors to sell their locked-down systems is just absurd" says Carlo Piana, FSFE's General Counsel. "The most substantial threat to competition in the mobile space today are software patents, and we have repeatedly urged antitrust authorities to address this problem," he adds.

FSFE asks the European Commission to dismiss the "FairSearch" coalition's unfounded claims regarding predatory pricing, and not make them part of whatever steps it decides to take in response to the group's filing.

I'd suggest they toss the whole thing also. There is no bundling issue. Partners can work together with Google, to achieve the best possible result, if they want to, kind of like Oracle, a FairSearch member, has requirements if you want to call your product Java; but if a company prefers to just do its own thing, without any Google input or requirements, they can, as Amazon has so clearly demonstrated with its Kindle product. The FSFE letter highlights the same thing, but better:
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. If anything, Android has attracted criticism because its licensing conditions and openness favour fragmentation, against Google's own interests.

Here's the entire FSFE letter, and it shows how to write politely but also clearly about a matter, in a way that should be received well. But use your own words, by all means, using it as a tone model, a topical outline, so to speak, if you wish, but not as a form letter, please:
FSFE objects to claims of 'predatory pricing' in Free Software

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 Software1 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 no one 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.

Update: Red Hat attorney Patrick McBride has also written an article on the topic of FairSearch's complaint for Linux.com:
Practically, however, predatory pricing turns out to be controversial and difficult to establish. This is particularly true for predatory pricing claims against free software. An alleged predator is highly unlikely to recoup "losses" caused by free distribution, since free software’s four freedoms allow competitors liberal entry into the market. Moreover, free software licenses (including GPLv2 and Apache v2) arm these competitors with the power to redistribute royalty-free, making any alleged effort at monopoly pricing unsustainable.

With these points in mind, one suspects that, far from championing competition and consumers, Microsoft and Nokia have instead merely launched the latest attack on free software in a decades-long war (a war that is the subject of an upcoming documentary by former Microsoft developer Keith Curtis,).


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