Modern innovations are increasingly dependent on the use of software, which can be licensed to third parties on a royalty-free basis under a so-called “open source” license, often with strings attached to associated intellectual property rights. As open source software (“OSS”) platforms continue to grow in prominence, OSS platforms may face potential antitrust scrutiny in particular circumstances, analogous to potential antitrust issues that have arisen in the standard-setting context. Although OSS platforms, like standard-setting organizations (SSOs), can produce significant pro-competitive benefits, both settings present potential antitrust risks if not appropriately managed, particularly for collaborative activities among significant competitors. Participants in OSS development should thus be cognizant of potential antitrust concerns, which may arise in that process, particularly as OSS platforms become increasingly significant in particular technological areas.
I. Overview of Open Source Software
OSS is computer software that, under one definition, “can be freely accessed, used, changed, and shared (in modified or unmodified form) by anyone.” Examples of OSS include Chrome, Linux, and Android. By allowing a software developer to incorporate the work of other developers into their own work, OSS can increase efficiency by avoiding the need to reinvent the wheel. OSS can also be beneficial in view of cost, as it is typically free for users, and flexibility, as it can allow downstream users to modify the software to align with their preferences.
OSS is often distributed under an OSS license such as a restrictive license or a permissive license. A difference between restrictive and permissive licenses is a so-called “copyleft” provision. A copyleft provision, found in restrictive licenses, can “allow derivative works but require them to use the same license as the original work.” By requiring derivative works to use the same license as the original work, copyleft provisions of restrictive licenses can require a licensee who creates a derivate work from OSS to distribute it on open source terms.
A patent confers “the right to exclude others from making, using, offering for sale, or selling the invention throughout the United States or importing the invention into the United States.” The underlying rationale for the patent system includes that it incentivizes invention, disclosure, and innovation. In contrast, OSS can require software developers to disclaim any patent rights when they license their inventions under an OSS license. This creates a potential tension between the patent system, which seeks to incentivize invention, disclosure, and innovation through the right to exclude, and OSS, which generally disclaims the benefit of the right to exclude.
II. The Intersection of Open Source Software, Intellectual Property, and Antitrust
To date, there have been relatively few antitrust cases involving OSS. In Wallace v. International Business Machines Corp., Judge Easterbrook remarked that “open-source software [has] nothing to fear from the antitrust laws.” But Judge Easterbrook’s statement should be understood in the context of the specific antitrust allegations in Wallace, rather than as a blanket statement that the antitrust laws may never be implicated in the OSS context. Indeed, the plaintiff’s central claim in Wallace was that he could not compete effectively with Linux because it is distributed for free. As recognized in this decision, however, the antitrust laws only condemn artificially low prices as unlawful in the rare circumstances where predatory pricing is likely to harm competition and consumers in the long run, as the “goal of antitrust law is to use rivalry to keep prices low for consumer’s benefit.”[xi] Applying these principles, the court concluded that the mere fact that participants in an OSS platform agree to license their software for free is not actionable as unlawful agreement under the antitrust laws.
Wallace did not address other potential antitrust questions that could arise in the OSS context, including the formation of new OSS platforms. Are there risks when competing developers collaborate regarding the scope and requirements for an OSS platform? How about when a software developer leverages market power to compel downstream developers into licensing their inventions on open source terms? Can there be antitrust consequences if an OSS developer engages in misleading or deceptive conduct regarding open source commitments? Each situation is addressed, in part, below.
A. Allegations of Collusion in Platform Development
A software developer has technology on which patent rights have been granted. Competing developers warn the software developer that if the technology is not made available as open source, they will work to ensure that consensus on and widespread adoption of the technology is not obtained. If the competing developers have sufficient market power to accomplish their threat, they could face antitrust liability if their coordinated conduct substantially harms competition by, for example, deterring innovation. Since software developers might need to disclaim their patent rights, and the accompanying financial reward, for their technology to achieve consensus and widespread adoption, they may be discouraged from engaging in research and development.
This situation could be characterized as akin to the possibility for patent “hold-out” by standard essential patent implementers, which some antitrust enforcers have raised as a potential competitive concern. In the SSO context, this issue may arise when “implementers threaten to under-invest in the implementation of a standard, or threaten not to take a license at all, until their royalty demands are met.” In the open source context, this issue could arise if software developers threaten to under-invest in the implementation of software, or threaten not to take a license in it at all, until it is made available as open source. Although other antitrust enforcers have taken contrary views, Makan Delrahim, Assistant Attorney General for the DOJ Antitrust Division, has stated in recent speeches that the hold-out problem may be a “serious impediment to innovation” in the standard essential patent context because “[t]he risk of failing to implement a new technology does not fall equally on innovators and implementers.” Instead, the ability to hold-out offers implementers significant leverage “before they make significant investments in new technology.” In the open source context, the risk of failing to implement a new technology similarly does not fall equally on innovators and competing developers, since the competing developers may use the prospect of a hold-out as leverage before investing in the new technology. Although there are important differences between the two settings, there are sufficient similarities that participants in OSS platforms should be mindful that antitrust issues that have arisen in the standard-setting context may be applied to similar collaborative activities involved in OSS development.
B. Allegations of Monopolization in Platform Development
A software developer may employ restrictive licenses. If the software developer has sufficient market power to compel downstream developers into licensing their inventions on open source terms, it could face antitrust liability if its conduct substantially harms competition by, for example, deterring innovation, diminishing competition, and encouraging free riding. Restrictive licenses can prevent downstream developers from asserting patent rights on their inventions through copyleft provisions, thereby discouraging research and development and encouraging free riding. Furthermore, competition may be diminished since prospective competitors will need to either reinvent OSS, which may serve as a barrier to entry due to the associated difficulty and cost, or license OSS subject to copyleft provisions, which may prevent competition from being financially feasible.
This situation can parallel that of patent pooling arrangements, where “two or more patent owners [agree] to license one or more of their patents to one another or to third parties.” Pooling arrangements may have an anti-competitive effect “if the arrangement deters or discourages participants from engaging in research and development, thus retarding innovation,” such as “a pooling arrangement that requires members to grant licenses to each other for current and future technology at minimal cost.” The use of restrictive licenses by a party with market power may have a similar anti-competitive effect. In fact, the example of “a pooling arrangement that requires members to grant licenses to each other for current and future technology at minimal cost” bears a strong resemblance to the scheme of a restrictive license that requires downstream developers to grant open source licenses on inventions that incorporate the licensed OSS.[xvii]
C. Allegations of Misleading or Deceptive Conduct in Platform Development
During the development of an open source platform, a software developer can agree to allow its technology to be licensed on open source terms. What if the developer fails, however, to inform the development group of patents related to its technology? Once the technology is incorporated into the open source platform, users of the platform unknowingly infringe the software developer’s patents. As such, the software developer can seek further royalties or file suit for patent infringement.
In Hynix Semiconductor Inc. v. Rambus Inc., the Federal Circuit remarked that “[a] member of an open standard setting organization may be equitably estopped or may have impliedly waived its right to assert infringement claims against standard-compliant products.” Equitable estoppel occurs when the patentee’s conduct “led the alleged infringer to reasonably infer that the patentee does not intend to enforce its patent against the alleged infringer.” Implied waiver occurs when “the patentee’s conduct was so inconsistent with an intent to enforce its rights as to induce a reasonable belief that such right has been relinquished.” In both instances, the requisite conduct can be demonstrated by the patentee having and breaching “a duty of disclosure to the standard setting organization.” OSS developers should expect misleading or deceptive conduct in open source platform development to be met with similar suspicion.
As the open-source movement becomes increasingly mainstream, additional antitrust scrutiny should be expected. This Article seeks to illuminate some of the antitrust issues that may arise in this unique setting. In particular, participants in OSS platforms should be mindful of the various antitrust issues that have arisen in the contexts of standard-setting organizations and patent pools, including allegations of collusive behavior or monopolization in the development of the applicable standards and of misleading or deceptive conduct. Although there are important differences between the two settings, in part, due to open source’s inherent tension with intellectual property, similar potential competitive concerns may exist.
Chris Hoffman, What is Open Source Software, and Why Does It Matter?, How-To Geek, https://www.howtogeek.com/129967/htg-explains-what-is-open-source-software-and-why-you-should-care/ (Sept. 26, 2016).
[xi] Id. at 1107.
Makan Delrahim, Assistant Attorney General., Antitrust, Dep't of Justice, Take it to the Limit: Respecting Innovation Incentives in the Application of Antitrust Law (Nov. 10, 2017), available at https://www.justice.gov/opa/speech/assistant-attorney-general-makan-delrahim-delivers-remarks-usc-gould-school-laws-center.
[xvii] See Patent Pools and Antitrust – A Comparative Analysis, supra note xvi.
ABOUT BAKER BOTTS L.L.P.
Baker Botts is an international law firm of approximately 650 lawyers practicing throughout a network of offices around the globe. Based on our experience and knowledge of our clients' industries, we are recognized as a leading firm in the energy, technology, and life sciences sectors. Since 1840, we have provided creative and effective legal solutions for our clients while demonstrating an unrelenting commitment to excellence. For more information, please visit bakerbotts.com.