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<html newsdate="2013-07-29">
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<version>1</version>
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<head>
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<title>FSFE objects to claims of 'predatory pricing' in Free Software</title>
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</head>
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<body>
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<h1>FSFE objects to claims of 'predatory pricing' in Free Software</h1>
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<p>
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To:<br />
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European Commission <br />
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DG Competition <br />
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B-1049 Brussels <br />
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Belgium
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</p>
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<p>
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According to reports in specialist online media, the so-called
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"FairSearch" coalition - comprised of Microsoft, Nokia, Oracle, and a
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number of online service providers - argues, in its latest submission
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to the European Commission, that the free-of-charge distribution of
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Android, a Free Software<a href="#footnote1">[1]</a> mobile operating
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system developed by Google, constitutes predatory pricing. Suggesting
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that the distribution of Free Software free of charge is harmful to
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competition is both wrong in substance, and dangerous to competition
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and innovation.
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</p>
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<p>
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We urge the Commission to consider the facts properly before accepting
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FairSearch's allegations at face value. We are writing to you today to
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explain how the distribution of Free Software, whether gratis or for a
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fee, promotes competition, rather than damaging it.
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</p>
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<p>
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<a href="/">Free Software Foundation Europe</a> (FSFE) is an independent, charitable
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non-profit organisation dedicated to the promotion of Free
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Software. FSFE maintains that the freedoms to use, study, share and
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improve software are critical to ensure equal participation in the
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information age. We work to create general understanding and support
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for software freedom in politics, law and society-at-large. We also
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promote the development of technologies, such as the GNU/Linux
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operating system, that deliver these freedoms to all participants in
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digital society. In pursuit of these goals, we have a long history of
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active involvement in competition proceedings that affect Free
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Software.
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</p>
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<h3>Free Software is about freedom, not price</h3>
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<p>
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The "Free" in Free Software refers to freedom, not
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price. Specifically, Free Software offers users the following <a
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href="https://www.gnu.org/philosophy/free-sw.html">freedoms</a>:
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</p>
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<p>
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<ol>
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<li>to use the program without restrictions; </li>
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<li>to study the program's source code, and understand how it works;</li>
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<li>to share the program with others, either gratis or for a
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fee; </li>
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<li>to improve the program, and share the improvements. </li>
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</ol>
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</p>
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<p>
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Taken together, these four freedoms turn the Free Software model into
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a powerful and disruptive force for competition. Free Software has
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considerably contributed breaking up the long-standing monopolies
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built up by makers of non-free software such as Microsoft.
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</p>
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<p>
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In many sectors, Free Software programs have long been either the
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leading applications, or the most powerful competitors. This includes
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web servers <a href="#footnote2">[2]</a> web browsing (Firefox),
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office productivity (LibreOffice, OpenOffice), and server operating
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systems. 93% of the 500 super computers worldwide run on Free Software
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operating systems.
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</p>
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<p>
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Free Software is the norm for makers of embedded devices, such as
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"smart" TVs, DSL routers, and cars' on-board computers, to name just a
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few. Today's leading web companies, such as Facebook, Amazon and
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Google, rely heavily on Free Software to build their offerings. Free
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Software also powers a plethora of startups and competitors with
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architectures and service models which offer alternatives to the
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established providers.
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</p>
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<h3>Trend in mobile and elsewhere is irreversibly towards Free
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Software</h3>
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<p>
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According to publicly available sources, the substance of FairSearch's
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claim is that by "giving away Android for free" Google undercuts the
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ability of its competitors in the mobile operating system to recoup
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investments in competing with "Google's dominant mobile platform."
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</p>
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<p>
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FSFE strongly objects to this characterization: Free Software is a
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highly efficient way of producing and distributing software, and
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selling licenses is just one among many possible ways to monetise
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software.
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</p>
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<p>
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Android is a software platform built around the Linux kernel and Java,
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forked into Dalvik, thanks to the fact that both Java and the kernel
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are available under Free Software licenses. Anybody can take Android
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and turn it into a better and freer distribution with few or no ties
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to Google, as long as the source code is made available, as it is. <a
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href="http://replicant.us/">Replicant</a> and <a
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href="http://www.cyanogenmod.org/">CyanogenMod</a> are just two
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notable examples, both of which are currently installed in millions of
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devices. Facebook's adoption of Android for its own purposes shows how
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the platform is actually open, so much that a competitor can ship an
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alternative GUI which is basically oriented to serving a competitor's
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purposes.
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</p>
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<p>
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The Commission, with regard to Java, has already found the value of a
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non fragmented platform to be high, and recognizes strong incentives
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to prevent its fragmentation <a href="#footnote3">[3]</a>. If anything, Android has attracted
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criticism because its licensing conditions and openness favour
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fragmentation, against Google's own interests. Fragmentation is a
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"threat" connected to the freedom of forking. In a proprietary setting
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the tight control over copyright, trademarks and patents makes it easy
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to avoid fragmentation. Conversely, in a Free Software environment,
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fragmentation is avoided by consensus and leadership on merit, and
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sometimes through the use of trademarks (Red Hat, Mozilla). Linux, the
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kernel common to the Android and GNU/Linux operating systems, has so
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far escaped fragmentation not because such a thing would be impossible
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or prohibited – it certainly is not -, but because it would be
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pointless. In a platform, ensuring the widest compatibility and high
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degree of standardization is a constant concern of any project,
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providing a strong incentive to avoid abuses of the community and a
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constrant pressure on the leader(s) of the project to proceed by
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consensus.<a href="#footnote4">[4]</a>
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</p>
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<p>
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In a powerful illustration of how the Free Software model enables
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competition, we note that all recent additions to the list of mobile
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operating systems are largely Free Software. Though Android devices
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currently make up <a
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href="http://www.canalys.com/newsroom/smart-mobile-device-shipments-exceed-300-million-q1-2013">around
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70% of mobile phones and tablets sold</a>, several other Free Software
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mobile operating systems based on the Linux kernel are setting out to
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to compete with Android. Examples include Firefox OS (backed by the
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Mozilla Foundation), Jolla (from the ashes of Maemo, a Nokia project
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terminated after the company's strategic alignment with Microsoft),
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Tizen (backed by Samsung, Intel and various telecom providers such as
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Vodafone and NTT Docomo), and UbuntuMobile (backed by Canonical).
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</p>
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<h3>Gratis distribution of code has nothing to do with predatory
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pricing</h3>
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<p>
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In its submission, the FairSearch coalition claims that Android's
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gratis availability makes it difficult or impossible for others to
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compete in the market for mobile operating system.
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</p>
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<p>
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However, selling software licenses has never been an important
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strategy in the mobile market. Blackberry maker RIM basically sold
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devices and server-side software and services to the enterprise
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sector. Apple subsidized its proprietary iOS with the sale of hardware
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and services, both by Apple and by third parties, taking a significant
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cut of the revenue for products sold through its iTunes online
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store. Nokia tried for a time to sustain two different operating
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systems, both of which were eventually released as Free Software
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(Symbian and Maemo, then renamed Meego, now forked by Jolla into
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SailFish). Only Microsoft has maintained an Independent Software
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Vendor position, mostly leveraging and marketing the integration with
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its network services.
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</p>
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<p>
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It would therefore seem that the only conceivable motive for the
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FairSearch coalition's complaint is that the existince of a number of
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Free Software mobile operating systems, including Android, makes it
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difficult for Microsoft to replicate this business model in the mobile
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space. FairSearch is essentially asking the European Commission to
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favour one business model over another. This is exactly the opposite
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of what an antitrust authority should aim for in order to maintain a
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competitive market. </p>
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<p>
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FSFE has consistently taken the stance that proprietary licensing is
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an outdated and inefficient system of producing software. From our
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point of view, Google has no incentives or means to monopolize the
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smartphone operating system market, simply because there is no market
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for proprietary operating system licenses.
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</p>
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<p>
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The predatory pricing theory proposed by FairSearch is plainly
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unsuitable to describe a market where there is no price, and a product
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that, being Free Software, can literally be taken by anybody and
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"forked", a practice that the Commission has already discussed in past
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activities. There is no "below cost" distribution in Free Software,
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because the price which market participants set for copies of mobile
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operating systems in these circumstances is precisely zero.
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</p>
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<p>
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Software is easy to copy at near-zero cost. In economic terms, this
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means that there is originally no scarcity in software. Such scarcity
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can only be introduced articificially, with proprietary licensing
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being the most frequently used way to do so.
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</p>
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<p>
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Conversely, Free Software creates a commons, in which everyone can
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participate, but which noone can monopolise. Free Software thus
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creates wealth and new growth opportunities for a wide range of
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companies and business models. An example of this is Red Hat, a
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company whose yearly turnover reached USD 1.3 billion, entirely by
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providing services around the free GNU/Linux operating system. Android
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has arguably created a competitive advantage for Google; but, contrary
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to Microsoft, Google's focus is not on software and monopolizing
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platforms, but on services, delivered on whichever platform the user
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happens to be using. Conversely, some analysts believe that <a
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href="ttp://arstechnica.com/information-technology/2011/10/microsoft-collects-license-fees-on-50-of-android-devices-tells-google-to-wake-up/">Microsoft
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now makes more money from Android</a> than it does from Windows
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operating systems on mobile devices, after the company engaged in an
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<a href="/activities/swpat/nortel.html">aggressive
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patent licensing campaign</a> towards makers of Android devices.
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</p>
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<p>
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Google's competitive advantage is essentially ephemeral: the only way
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to stay ahead of the competition in Free Software is to provide better
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products or services, and to win users' trust. Barriers to entry for
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competitors are extremely low. An example is that the platform allows
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installing alternative marketplace (or "app stores"). The Free
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Software Foundations promote a <a
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href="/activities/android/liberate.html">"Free Your
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Android" campaign</a> where they solicit adoption of an alternative
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marketplace called F-Droid where only Free Software applications are
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provided.
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</p>
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<h3>Conclusion</h3>
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<p>
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With its submission, the FairSearch coalition seems to assume that
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European regulators are unaware of the developments in the software
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market over the past decade. Rather than highlighting a genuine risk
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to competition in the mobile market, the FairSearch submission gives
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the impression that Microsoft - a company convicted of
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anti-competitive behaviour in high-profile lawsuits on three
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continents - is attempting to turn back the clock. The company is
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essentially arguing that the Commission should protect its outdated
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business model in the mobile sector against a more effective
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disruptor. We respectfully beg to differ.
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</p>
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<p>
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The nature of Android as a commons makes it very valuable to OEMs,
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precisely because Google can only control it through leadership, not
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through an iron fist and lock-in, as is the case with proprietary
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alternatives. This very fact should be considered a source of strong
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competitive pressure.
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</p>
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<p>
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We recommend that the European Commission should dismiss the
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application without even opening a formal case. In any event, should a
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statement of objections be issued, it should avoid to contain any
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reference to the Free Software licensing as a source of competitive
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concerns. Indeed, the Free Software nature of Android should be
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considered per se a powerful tool to reduce barriers to entry and to
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enhance competition.
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</p>
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<p>
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At FSFE, we will continue to work with the European Commission on
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leveraging Free Software in order to create and maintain competition
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in the marketplace. As experts and stakeholders, we stand ready to
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support the Commission in all matters relating to Free Software.
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</p>
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<p>Sincerely, </p>
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<p>Karsten Gerloff, President </p>
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<p>Carlo Piana, General Counsel</p>
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<p>Free Software Foundation Europe </p>
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<p id="footnote1">[1] Often referred to as “open source”. “Free
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Software” is the original and more accurate name which reflects all
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the aspects of the same phenomenon.</p>
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<p id="footnote2">[2] As of June 2013, <a
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href="http://news.netcraft.com/archives/2013/06/06/june-2013-web-server-survey-3.html">fully
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68% active websites</a> run on the Free Software server programs
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Apache and nginx.</p>
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<p id="footnote3">[3] Decision in Case No COMP/M.5529 – ORACLE/ SUN MICROSYSTEMS, paragraph 935.</p>
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<p id="footnote4">[4] Decision in Case No COMP/M.5529 – ORACLE/ SUN
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MICROSYSTEMS, paragraph 655.</p>
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</body>
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<tags>
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<tag key="front-page"/>
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<tag key="european-union"/>
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<tag key="european-commission"/>
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<tag key="competition"/>
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<tag key="antitrust"/>
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</tags>
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</html>
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