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<html newsdate="2013-07-29">
<version>1</version>
<head>
<title>FSFE objects to claims of 'predatory pricing' in Free Software</title>
</head>
<body>
<h1>FSFE objects to claims of 'predatory pricing' in Free Software</h1>
<p>
To:<br />
European Commission <br />
DG Competition <br />
B-1049 Brussels <br />
Belgium
</p>
<p>
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 Software<a href="#footnote1">[1]</a> 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.
</p>
<p>
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.
</p>
<p>
<a href="/">Free Software Foundation Europe</a> (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.
</p>
<h3>Free Software is about freedom, not price</h3>
<p>
The "Free" in Free Software refers to freedom, not
price. Specifically, Free Software offers users the following <a
href="https://www.gnu.org/philosophy/free-sw.html">freedoms</a>:
</p>
<p>
<ol>
<li>to use the program without restrictions; </li>
<li>to study the program's source code, and understand how it works;</li>
<li>to share the program with others, either gratis or for a
fee; </li>
<li>to improve the program, and share the improvements. </li>
</ol>
</p>
<p>
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.
</p>
<p>
In many sectors, Free Software programs have long been either the
leading applications, or the most powerful competitors. This includes
web servers <a href="#footnote2">[2]</a> web browsing (Firefox),
office productivity (LibreOffice, OpenOffice), and server operating
systems. 93% of the 500 super computers worldwide run on Free Software
operating systems.
</p>
<p>
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.
</p>
<h3>Trend in mobile and elsewhere is irreversibly towards Free
Software</h3>
<p>
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."
</p>
<p>
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.
</p>
<p>
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. <a
href="http://replicant.us/">Replicant</a> and <a
href="http://www.cyanogenmod.org/">CyanogenMod</a> 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.
</p>
<p>
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 <a href="#footnote3">[3]</a>. 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.<a href="#footnote4">[4]</a>
</p>
<p>
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 <a
href="http://www.canalys.com/newsroom/smart-mobile-device-shipments-exceed-300-million-q1-2013">around
70% of mobile phones and tablets sold</a>, 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).
</p>
<h3>Gratis distribution of code has nothing to do with predatory
pricing</h3>
<p>
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.
</p>
<p>
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.
</p>
<p>
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. </p>
<p>
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.
</p>
<p>
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.
</p>
<p>
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.
</p>
<p>
Conversely, Free Software creates a commons, in which everyone can
participate, but which noone 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 <a
href="ttp://arstechnica.com/information-technology/2011/10/microsoft-collects-license-fees-on-50-of-android-devices-tells-google-to-wake-up/">Microsoft
now makes more money from Android</a> than it does from Windows
operating systems on mobile devices, after the company engaged in an
<a href="/activities/swpat/nortel.html">aggressive
patent licensing campaign</a> towards makers of Android devices.
</p>
<p>
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 <a
href="/activities/android/liberate.html">"Free Your
Android" campaign</a> where they solicit adoption of an alternative
marketplace called F-Droid where only Free Software applications are
provided.
</p>
<h3>Conclusion</h3>
<p>
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.
</p>
<p>
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.
</p>
<p>
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.
</p>
<p>
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.
</p>
<p>Sincerely, </p>
<p>Karsten Gerloff, President </p>
<p>Carlo Piana, General Counsel</p>
<p>Free Software Foundation Europe </p>
<p id="footnote1">[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.</p>
<p id="footnote2">[2] As of June 2013, <a
href="http://news.netcraft.com/archives/2013/06/06/june-2013-web-server-survey-3.html">fully
68% active websites</a> run on the Free Software server programs
Apache and nginx.</p>
<p id="footnote3">[3] Decision in Case No COMP/M.5529 – ORACLE/ SUN MICROSYSTEMS, paragraph 935.</p>
<p id="footnote4">[4] Decision in Case No COMP/M.5529 – ORACLE/ SUN
MICROSYSTEMS, paragraph 655.</p>
</body>
<tags>
<tag key="front-page"/>
<tag key="european-union"/>
<tag key="european-commission"/>
<tag key="competition"/>
<tag key="antitrust"/>
</tags>
</html>