FREE SOFTWARE PAGE
July 3, 2003
Copyright (c) 2003 University of Michigan Law School
Michigan Telecommunication and Technology Law Review
9 Mich. Telecomm. Tech. L. Rev. 313
LENGTH: 34162 words
ARTICLE: GOVERNMENT PREFERENCES FOR PROMOTING OPEN-SOURCE SOFTWARE: A SOLUTION IN SEARCH
OF A PROBLEM+
(c)2002 by David S. Evans and Bernard J. Reddy. All rights reserved.
David S. Evans*, Bernard J. Reddy**
* Evans is with NERA Economic Consulting in Cambridge, MA and the Center for
the New Europe in Brussels, Belgium.
** Reddy is with NERA Economic Consulting in Cambridge, MA. We are grateful for
financial support for our research from Microsoft. We also thank Robert Hahn
and Anne Layne-Farrar for helpful comments and James Hunter, Bryan
Martin-Keating, and Irina Danilkina for exceptional research assistance.
... Governments around the world are making or considering efforts to promote
open-source software (typically produced by cooperatives of individuals) at the
expense of proprietary software (generally sold by for-profit software
developers). ... For example, Windows is written in C and C++, many custom
applications written by corporate programmers for their companies' internal use
are written in Visual Basic, most computer games are written in C or C++, much
"business logic" for Web sites is written in Java, and Linux (a popular open-source operating
system) is written predominantly in C. These languages have
"compilers" that translate the commands into binary code - a series of 1s and 0s - that
the computer hardware understands. ... Sales of proprietary software to
support the Open Source development are also underperforming, as Linux
customers, even within the Fortune 500, have become wary of dependence on
non-Open-Source. ... IBM uses Linux (and other open-source software) to help
promote sales of both its hardware and proprietary software. ... In other
cases, proprietary software may be the best choice because its technical
superiority outweighs the fact that the open-source alternative provides the
source code for free. ... In theory, proprietary software has the potential to
watch a user and transmit usage data back to the software vendor for marketing
or other purposes. ...
Governments around the world are making or considering efforts to promote
open-source software (typically produced by cooperatives of individuals) at the
expense of proprietary software (generally sold by for-profit software
developers). This article examines the economic basis for these kinds of
government interventions in the market. It first provides some background on
the software industry. The article discusses the industrial organization and
performance of the proprietary software business and describes how the
open-source movement produces and distributes software. It then surveys current
government proposals and initiatives to support open-source software and
examines whether there is a significant market failure that would justify such
intervention in the software industry. The article concludes that the software
industry has performed remarkably well over the past 20 years in the absence of
government intervention. There is no evidence of any significant market
failures in the provision of commercial software and no evidence that the
establishment of policy preferences in favor of open-source software on the
part of governments would increase consumer welfare.
Part I. Introduction
Governments around the world are making or considering efforts to promote
open-source software (typically produced by cooperatives of individuals) at the
expense of proprietary software (generally sold by for-profit software
n1 Proposals include government subsidies of research and development (R&D) for open-source software, standardization on using open-source software, and
procurement preferences for open-source software. The European Parliament, for
example, adopted a resolution in September 2001 that calls on the Commission
and Member States
"to promote software projects whose source text is made public."
n2 The German Bundestag is considering legislation that would require government
agencies to use open source.
n3 Former French Prime Minister Jospin created an agency whose mission will be to
"encourage administrations to use open source software and open standards."
n4 The U.S. government has supported R&D efforts that create software that must be released under restrictive
n5 Leaders of the open-source movement are naturally spurring these efforts.
n6 But so are academics such as Professor Lawrence Lessig of Stanford Law School.
[*316] This article examines the economic basis for these kinds of government
interventions in the market. Over the last twenty years, most governments have
chosen to increase their reliance on market forces to govern the production and
distribution of goods and services. Some previously communist countries, such
as Poland, have sharply reduced centralized planning, privatized major national
industries, and introduced market competition. Some capitalist countries, such
as the United Kingdom, have reduced their reliance on government regulation and
attempted to increase the scope of market competition. Policymakers are
generally more skeptical than they were twenty years ago about the wisdom of
having governments control markets. There remains a wide spectrum of beliefs
among policymakers, but the spectrum has shifted. Industrial policy - having
governments pick winners and losers - has also lost some of its luster now that
the success stories of the 1980s - Japan in particular - have become mired in
seemingly interminable recessions. Against this economic backdrop, it is a bit
surprising to see so many countries entertaining policies to promote a
particular, namely open-source, method for producing and distributing
n8 This is surprising because governments have recently been making fewer efforts
to endorse particular methods. Although economists often have a myriad of
opinions on the merits of any particular government intervention, there is a
consensus about the principles that one should follow in determining whether an
intervention is desirable.
n9 First, economists insist on the identification of a significant market failure
- a significant flaw or breakdown in the market process,
[*317] which prevents competition from giving consumers the greatest possible
benefits given scarce resources.
n10 Second, economists want some assurance that solving the market failure through
government intervention will actually improve things (i.e., make consumers
n11 That depends on whether it is possible to devise an intervention that solves
the market failure without imposing direct and indirect costs that swamp the
This article examines whether there is evidence of a significant market failure
in the production of software, and whether the proposals being considered might
provide a cost-effective solution to such a market failure.
n12 We reach the following conclusions:
. There is no evidence of a significant market failure that needs fixing.
. There is no reason to believe that the proposed government policies would
actually increase social welfare.
Part II provides background on software code and the role of intellectual
property in protecting investments in code. This helps clarify issues
concerning incentives that individuals and firms have for developing
proprietary and open-source software. Part III describes the industrial
organization and performance of the proprietary software business; the industry
is performing well, and there is no obvious market failure that needs fixing.
Part IV describes how the open-source movement produces and distributes
open-source software. An understanding of these issues is needed to analyze
some of the proposed government policies and how they would (or would not)
affect the development of open-source software. Part V looks at advantages and
disadvantages of the open-source and proprietary approaches to software and
discusses the possible evolutionary paths for the software business in the
absence of government intervention. Again, this is needed to analyze some of
the proposed government policies and their possible effects on the development
of open-source software. Part VI surveys government programs and proposals to
promote open-source software and then
[*318] analyzes these programs and proposals using the market-failure framework
discussed above. Part VII presents brief conclusions.
Part II. Software Design and Intellectual Property Protection
Many things go into the creation of computer software before there is any
code. The creation of a software package follows some conception of the purpose
of the package - for example, to check spelling in documents, to determine
whether a number is prime, or to control a particular piece of hardware. Going
from the conception to a workable package requires the producers to develop
architecture for the software that will guide programmers in the coding
process. It may also require special numerical algorithms or programming
tricks. As a result, a software package may depend on intellectual property,
protected by patents or trade secrets, that is independent of the code that is
actually written. For example, the popular
"MP3" audio format is based on audio coding patents owned by Fraunhofer IIS-A.
Most programs are written in one of several
"high-level" languages. Popular high-level languages include C, C++, Java, Visual Basic,
and Pascal. These languages often have commands that look like a written
language (usually English) and have meanings that are consistent with written
language. For example,
"While" are common commands in many languages. The commands available in high-level
languages provide a shorthand for more detailed instructions provided to
computers, thus enabling the programmer to avoid many repetitive tasks. For
example, Windows is written in C and C++, many custom applications written by
corporate programmers for their companies' internal use are written in Visual
Basic, most computer games are written in C or C++, much server-side
"business logic" for Web sites is written in Java, and Linux (a popular open-source operating
system) is written predominantly in C. These languages have
"compilers" that translate the commands into binary code - a series of 1s and 0s - that
the computer hardware understands.
[*319] Figure 1 shows a simple example of a program. The first panel shows the design
of the program. The second panel shows the C++ code that accomplishes the
purposes of this design. The third panel shows compiled binary code.
Figure 1 Simple Program: from Design, to Source Code, to Binary Code
[see org] The value of a program resides in the high-level software code
(source code) that accomplishes the objective of the program (second panel) as
well as the architecture, algorithms, and other elements that help the
programmers write the code. In other words, if a programmer had the information
in the left pane of Figure 1, he would have a significant head start in writing
software code that accomplished the objective of the package. If a programmer
had just the source code in the middle pane, as he would with open source
programs, he would probably be able to figure out the architecture, algorithms,
and other helpful tips for writing the code. He would also have the source code
that he could compile and run. But if a programmer had only the binary code in
the right pane, as he would with the typical proprietary program, he would have
a very difficult time figuring out the source that generated that binary code
or any of the intellectual property that was relied on in creating that binary
[*320] Software creators can use various mechanisms to prevent others from using
their software and any intellectual property embodied in that software. Patents
can protect algorithms and other creative aspects of software design.
Copyrights on software code (binary and source) could prevent others from either copying
the code without permission or using the code as an input into a product of
their own. Finally, and perhaps most importantly, it is possible to limit
seriously the ability of others to discover the intellectual property of
software - including the source code - by distributing the software only in
binary form. Creators of software can decide to rely on none, some, or all of
these forms of intellectual property protection. Although there are examples
along this full continuum of protection, the most common forms of protection
are trade secrets (through distributing the code only in binary form) and
Two distinctions are useful for summarizing the major types of software. The
first is the distinction between distributing software as source code ("open source") or as binary code ("proprietary").
n18 The second is between distributing software at no direct charge ("unpaid")
n19 versus direct charge ("paid") software distribution.
Over the years many people and groups of people have written software for which
they have chosen not to exercise any property rights and have even made efforts
to distribute the software widely.
n21 Before the
[*321] Internet made distribution easy, the source code for such software might be
distributed on paper or electronic media such as computer tapes and disks. For
example, programs to implement various mathematical functions were widely
available in the scientific and technical communities. In other cases people
have not distributed the source code but have freely distributed the binary
code without enforcing limitations on further distribution and use. This type
of software is usually called
The spread of personal computers in homes and offices created a mass market for
software. Not surprisingly, many commercial companies emerged to write software
for profit. These companies initially protected their investments by enforcing
copyrights on their software and by distributing the software in binary form to prevent
reverse engineering. By the mid-1980s, it became possible to obtain patents on
certain aspects of software, and many companies chose this route for protecting
their intellectual property.
n23 The number of software patents awarded annually to U.S. inventors has
increased from 829 in 1986 to 7,398 in 2000.
Most, but not all, proprietary software is sold at a price, and the source code
is usually not made available. The mathematical package Mathematica is licensed
to commercial users for $ 1,880 or $ 3,135, depending on the platform, and is
available for many different kinds of computing platforms.
n25 Intuit's QuickBooks accounting package costs between $ 199 and $ 500 depending
on the edition.
n26 Collections of
"utility" programs for Windows (such as Norton Utilities) typically are priced in the
range of $ 40-$ 70.
n27 Final Fantasy X, a popular game for Sony's PlayStation 2 console released in
2001, sells for around $ 40 a copy;
n28 newer video games, such as Splinter Cell, sell for around $ 50 a copy.
"Open-source" software is distributed under very different terms than is typical proprietary
software. First, the source code (although protected by
copyright, as with proprietary software) is made publicly available. Second, the software
is distributed under a license that enables people to use the source code only
if they comply with certain conditions. The BSD license,
n30 perhaps the oldest open-source license, has been modified, but typically
allows the free use of the source code so long as the original
copyright is acknowledged. People who modify the source code can choose to redistribute
the binary code, the source code, both, or neither. For example, early versions
of Sun's variant of the Unix operating system were based on a BSD version of
n31 the latest version of the Macintosh operating system is also based in part on
a BSD version of Unix.
n32 Importantly, people can charge for the modified code and need not give away
Although many widely used open-source software products have been distributed
under a BSD-style license, the General Public License
n34 has become the dominant form of licensing for open-source software.
n35 Many of the key persons and institutions spearheading the open-source movement
believe that this is the license that will best achieve their goals.
n36 If a program is distributed under the GPL, the source code for the program is
made available (as is also true with other open-source licenses). Others have
the right to modify the program's source code for their own use without
restriction and without charge. But anyone who distributes a modified version
of a GPL program must likewise release the modified program under the GPL, and
he must make the source code for the modified program available, essentially
n37 That precludes a firm from building a proprietary product based on software
licensed under the GPL since all enhancements to a GPL program must be made
available to customers and competitors alike. Because of this feature, the GPL
is sometimes called
"viral." Programs relying on software licensed under the GPL are
"infected" by the GPL. Linux is perhaps the most popular software released under the GPL.
The remainder of this article primarily considers two major types of software
at the center of public-policy debates: proprietary software and open-source
software distributed under the GPL.
n39 The public policy
[*324] debate centers around them for several reasons: first, most of today's widely
used software is proprietary; second, the GPL currently appears to be the most
popular license for open-source software; and given the distribution
restrictions of the GPL, proprietary software and GPL software (unlike BSD
software) face a potentially uneasy coexistence.
Part III. The Economics of Commercial Software
An analysis of government intervention in an industry should begin with an
examination of that industry: is there a market failure that can be addressed
by intervention? To that end, we provide an overview of the commercial software
industry and its changes over time.
Worldwide commercial software
n40 is a $ 171 billion business based on revenue.
n41 Revenues from U.S.-based commercial software companies amounted to over $ 90
billion in 2000.
n42 That makes the U.S. commercial software industry larger than the motion
picture industry ($ 74 billion in 2000) and around a fifth of the size of the
auto industry ($ 408.6 billion in 2000).
n43 Generally, software is a relatively inexpensive but critical input into the
production of computing services. This section describes the structure and
performance of the commercial software sector.
A. Overview of the Commercial Software Business
The size of the software industry has increased dramatically over the past few
decades. From 1988 to 2000, revenues from worldwide proprietary software
increased from $ 35 billion to $ 171 billion (measured in 2000 U.S. dollars) -
an annual growth rate of over 14
n45 See Table 1. In the United States, the number of software firms more than
doubled between 1992 and 1999, and the number of employees more than tripled.
n46 IDC, the leading vendor of data on the software industry, commented in its
2001 software market forecast that,
"it is likely that there are more than 10,000 companies competing in the
packaged software market ..."
n47 In the United States, the Census Bureau identified almost 9,000 software firms
with over 300,000 employees in 1999.
Table 1 Packaged Software Revenues (in millions)
[*326] IDC divides software into three categories:
"system infrastructure software," which includes operating systems;
"application development and deployment software," which includes programming tools as well as spreadsheets; and
"application software," which includes applications such as word processors. As shown in Table 2,
applications software has the largest share of revenue (45 percent), followed
by operating systems and other system infrastructure software (31 percent),
followed by application development software (23 percent).
Table 2 Worldwide Packaged Software Revenues by Software Category, 2000
[see org] Compared with many other industries, the software industry is
relatively unconcentrated. One conventional measure of industry concentration
is the total share of sales accounted for by the four largest firms. In 2000,
the four largest firms in the proprietary software industry accounted for 26.7
percent of total revenues.
n49 According to the latest Census data, over 47 percent of all manufacturing
industries have a four-firm concentration ratio greater than that of the
[*327] A second measure of industry concentration is the Herfindahl-Hirschman Index
(HHI), widely used in antitrust analysis.
n51 HHIs can range from zero (a large number of firms with infinitesimal market
shares) to 10,000 (a monopoly with 100 percent of the market).
n52 In 2000, the HHI for the software industry was 244,
n53 a relatively low HHI when compared with other familiar industries such as
automobiles (2,506) or breakfast cereals (2,446).
There is also a great deal of turnover among the leading firms, which indicates
that firms generally are not entrenched. Five of the top ten companies in 1990
did not make the list in 2000, either because they went out of business, they
were acquired by another company, or their share of software revenues dropped
over the decade.
n55 Compare this to the turnover in pharmaceuticals, another industry based on
intellectual property. Eight of the ten leading pharmaceutical companies in
1990 were still in the top ten in 2000.
B. Production Method
The production of commercial software consists primarily of initial costs.
Software development is generally an iterative process, with the
[*328] development of typical commercial software including the following steps:
1. Identifying customer needs. After starting with a good idea, the developer
needs to learn which features customers are likely to value, which features are
likely to be considered essential, how different user interfaces can make the
software easier to use, and so forth. The importance of these aspects of
software design may well differ substantially across different types of
software; computer games and email server software are likely to be used by
different customers, with different capabilities.
2. Designing the software. This generally includes high-level concepts, such
as what major modules will do, how the modules will communicate with each other
(and with other computers, if relevant), and so forth.
3. Coding, building, and testing. Programmers typically test their code
frequently, often in small pieces. Large software systems go through frequent
"builds," in which all the different modules that have been initially tested by the
coders are collected together,
"built" into the complete product, and then subjected to a battery of tests. The
testing reveals flaws, which require recoding and sometimes redesign. Flaws can
"bugs" (errors that cause the program to behave in undesirable ways in some
circumstances) and performance problems. Redesign sometimes involves the
dropping or simplification of problematic features.
Once the design/code/build/test process is completed, the product is ready to
ship (documentation is typically developed along the way). In general, the
variable costs for each unit of software shipped are low: the cost of a CD and
a slender manual will seldom exceed a few dollars.
n57 Sales, marketing, and promotional expenses can take different forms depending
on the type of software and target customer. Software for large servers is
often expensive (in the tens of thousands of dollars or more) and is often sold
through a direct sales force. Mass-market software for PC end users is often
priced at less than $ 100 and might be sold through
[*329] retail stores, over the Web, through computer manufacturers, via direct mail
solicitation, and so forth.
Support costs can also widely vary, depending on the type of software.
Complicated software (such as for large servers) might have a separate support
agreement. Mass-market software for end users might provide limited support via
phone or email. Developers of mass-market software have incentives to design
software that has the desired functionality without requiring support; one or
two technical support calls can wipe out much or all of the margin on a product
retailing for less than $ 100.
After a product ships, two processes often begin: maintenance work on the
just-shipped product to fix bugs or add new features; and designing the next
version of the software.
n59 Games software might not, strictly speaking, have
"new versions," but successful games typically have sequels.
One feature of the software industry emerges clearly from this review: average
costs of a software product fall with volume. In general, a large fraction of
total costs for any given product come from the design, coding, and testing
stages. For PC software, the largest purely variable cost
n61 will sometimes be support, sometimes materials and packaging. But for typical
PC software, these costs are low compared with the usual development costs.
C. Commercial Business Model and Nature of Competition
As discussed above, the development of commercial software generally involves
high initial costs and relatively low marginal costs. In order to stay in
business, a successful firm must charge substantially more than
[*330] marginal cost in order to cover its fixed costs.
n63 Most software projects are losers in the marketplace, but the financial
bonanza available for a winner gives firms incentives to invest.
n64 Me-too products offering little functionality beyond what is in competing
products are seldom attractive for commercial firms to develop, unless the
development costs are exceptionally low. With a me-too product, price
competition from other vendors can quickly destroy profitability. As a result,
commercial software firms (like many firms in other industries) prefer to
differentiate their products from those of their competitors.
Because software production has high first costs and low marginal costs,
competition within any particular product category has at least some elements
"natural monopoly": higher volume means lower average costs, which means profitability can be
achieved at a lower price. Such characteristics can lead a market to have only
a very small number of active suppliers.
This potential for
"natural monopoly" is increased if a software category exhibits
"network effects." Network effects can arise on either the demand side or the supply side of the
market. On the demand side, if most business users of computers use (for
example) the same word processing program, then it is relatively easy to trade
files, to transfer knowledge of how to use software, and so forth. On the
supply side, the availability of complements can give rise to network effects.
The more applications existing for a given software platform, the more
desirable the platform is for users; the more users a software platform has,
the more desirable the platform is for developers.
Not all software categories exhibit strong network effects, but those that do
provide the potential for particularly large rewards for a winning program;
these network effects provide substantial benefits to users, enabling a winning
program to make more sales. But category leaders can and do get replaced.
n65 In a software category with strong network
[*331] effects, competition is typically dynamic competition for the market, rather
than static price competition within the market.
n66 Firms compete by coming out with the best, most attractive new products,
thereby attracting the bulk of the customers, not by dropping prices for
existing products. As a result, the existence of a
"dominant" firm in a software category does not imply that some type of
"market failure" exists that government intervention can (and should) try to fix. But note that
not all software categories exhibit network effects. The existence of
heterogeneous groups of customers (i.e., customers with different preferences)
can enable multiple software firms to coexist in the same category, with
different firms targeting the preferences of the different groups of customers.
Commercial firms typically protect their intellectual property using
copyrights, patents, and trade secrets, as discussed above. For instance, they license
only binary code to make reverse engineering more difficult for competitors,
thus making it harder to copy key program features. They take these steps to
protect their opportunity to recover their fixed investment cost or to be
rewarded for the risks borne in financing software creation and development. If
a competitor could readily copy (or enhance) the features of a successful
commercial software firm's products, the firm would face the possibility of
short-run price competition and long-run loss of leadership. The commercial
software industry that has thrived over the past 30 or more years would not
exist as we know it today without these types of protection for intellectual
1. Performance of Commercial Software
The commercial software industry has exploded since its early years.
Quality-adjusted prices have fallen markedly in nominal terms, even before
adjusting for inflation. Quality-adjusted output has soared. By any measure,
the commercial software industry is succeeding in providing ever-more powerful
products that customers are willing to pay to acquire. Hardware has improved
enormously as well, of course. But the hardware improvements have needed
complementary software improvements to provide their current range of benefits
to consumers. In general, the explosive growth of the commercial software
[*332] serious doubt on any claims that a significant market failure in the industry
needs to be cured by government intervention.
Figure 2 Worldwide Quality-Adjusted Packaged Software Sales, 1988-2000
a. Output Has Boomed
"output" of the software industry is difficult, since the quality of software has
improved enormously over time. The U.S. Bureau of Economic Analysis has
constructed a price index for
[*333] prepackaged software that attempts to control for quality improvements.
n67 Based on this price index and IDC's estimates of annual packaged software
revenues, Figure 2 shows the annual quality-adjusted output of the packaged
software industry as an index relative to the level in 1988. In 2000,
quality-adjusted worldwide output was more than 20 times as large as it was 12
years earlier. Similarly, quality-adjusted output by U.S.-based/North American
software vendors increased 50-fold from 1983 to 2000 (data not shown).
b. Price and Performance Have Improved Markedly
The Bureau of Labor Statistics publishes a Consumer Price Index (CPI) for
"computer software and accessories" (available from December 1997 onward).
n69 This index attempts to control for changes in software quality. From December
1997 through December 2001, the software CPI fell by 20.5 percent while the CPI
for all items rose by
[*334] 9.5 percent.
n70 This means that the real price of software fell by approximately 27.4 percent
over this period.
Computer hardware and software both have improved dramatically in terms of
price relative to performance. One popular industry benchmark for database
servers shows that the fastest system in April 2001 could process 60 times as
many transactions per second as the fastest system in December 1996.
n72 Based on system price relative to performance over that same time period, the
most efficient system available improved by a factor of 12.
n73 Much of this improvement in performance (and price relative to performance)
has been due to faster hardware. But if the 2001 hardware had been combined
with the 1996 software, the 2001 performance would have fallen far short of the
performance achieved with modern software.
c. Patents and Research and Development Have Expanded Sharply
Inputs to and outputs from the innovative process of commercial software
development have also increased dramatically over the past 15 years. For
example, in 1985, R&D expenditures by publicly traded software companies in the United States
accounted for about 1 percent of total industrial R&D in the United States.
n74 By 2000, that number increased to 10 percent.
n75 As mentioned above, patenting of software has
[*335] also increased substantially.
n76 In 1986, 829 patents were granted for software with at least one U.S.
inventor. In 2000, 7,398 patents were granted.
n77 Precise links between either R&D or patents and innovation may be difficult to trace, but the innovative
process appears to be flourishing.
2. Lessons from the Vertical Disintegration of the Computer Industry
The proprietary software business owes much of its growth to fundamental
changes in the extent to which hardware and software were integrated.
a. Software Production in the Mainframe Era
The 1960s and 1970s were the era of expensive mainframe and minicomputers.
n78 The suppliers of these computers tended to be vertically integrated: they
shipped their computers with operating systems, compilers for programming
languages, and other software tools. In the 1960s, applications software was
essentially customized. Firms that bought the large computers of that era
generally either wrote their own software or hired outsiders to write software
for them. By the late 1960s and early 1970s, commercial software had started to
appear. In some cases, this consisted of software that a custom programming
firm had written for one client, retained the rights to, and then licensed to
n79 These products were typically expensive, although much
[*336] less expensive (but possibly less versatile) than custom software.
n80 By the end of the 1970s, off-the-shelf software for mainframes was
commonplace. For example, SPSS and SAS, programs for data handling and
statistical analysis, have been familiar to empirically minded social
scientists, such as the authors, since the mid-1970s.
In the early parts of this era, when little or no commercial software was
available, substantial trading of software was fairly common; the software was
usually traded in the form of source code to make it easier to port from one
computer to another. By the 1970s, according to Richard Stallman, substantial
trading of software was unusual.
b. Software Production in the PC Era
Mass-market software really dates from the emergence of small, relatively
inexpensive personal computers in the late 1970s and early 1980s. Someone who
wrote a useful program could now hope to sell copies to a large number of less
sophisticated computer users.
n83 As a result, this era saw an explosion of proprietary software. In 1974, Gary
Kildall created what was probably the first commercial operating system for
personal computers, CP/M, and licensed it to many computer manufacturers.
n84 Bill Gates and Paul Allen wrote their first version of MS-BASIC and formed
Microsoft in 1975.
n85 Word processing programs (such as Electric Pencil and later WordStar)
n86 were among the first applications programs offered for sale, coming on the
market in the late 1970s. The spreadsheet category of programs was invented
with VisiCalc in 1979.
n87 Database programs such as dBase II came along a few years
n88 While early PC users did swap software - Bill Gates raised the ire of hackers
by complaining about their pirating of MS-BASIC
n89 - there was no organized open-source movement, and the open-source approach
played no visible role in the early history of PC software.
The explosion of the personal computer hardware and software industries was
accompanied by a major shift from the vertically integrated approach of
mainframe and minicomputer vendors in earlier years. Operating systems and
applications software increasingly came from firms independent of the computer
vendors. Some operating systems were still proprietary to hardware vendors
(e.g., Apple has always shipped proprietary operating systems for its Apple II
and Macintosh families of computers). The most successful operating systems
(first CP/M, then MS-DOS, and later Windows), however, were licensed by
software firms to hardware vendors. The most popular development tools (such as
language compilers) came from software firms, not hardware firms. And, of
course, applications programs for personal computers have typically not been
written by integrated hardware firms. This shift away from a vertically
integrated approach was a marked change from the prior mainframe/minicomputer
The commercial software industry has exploded over the last 20 years,
providing a dizzying array of ever-more powerful software for use by both
technically minded users and less sophisticated users. Quality-adjusted prices
have fallen sharply. Overall firm concentration in the industry is low, and the
identities of the top firms change over time. Leaders in major software
categories frequently change as well. R&D and patent activity have risen substantially. There is no evidence that a
significant market failure exists that is amenable to fixing by government
policies toward procurement or R&D.
Part IV. The Economics of GPL Open-Source Software
An analysis of whether governments should intervene in the marketplace to
support open-source software requires an understanding of what
[*338] open source is about and of the incentives that various players may (or may
not) already have to support the development of open source.
Software developed and licensed under the GPL does share many features with
other types of open-source software, but it differs in some regards. For
example, some observers have claimed that programmers are more inclined to
donate their time to develop GPL software than other open-source software. And
commercial firms may have different incentives for supporting the development
of GPL software than for other open-source software with fewer restrictions on
A. Institutional Arrangements
Free Software Foundation is the Ideological Heart of the Movement
The current open-source movement can trace its origins to the
Free Software Foundation (FSF), founded by Richard Stallman in 1985. The FSF initiated a
project - known as GNU
n90 - to develop a non-proprietary Unix-like operating system. The FSF's efforts
were based in part on the belief that
"free software is a matter of liberty."
n91 According to Stallman,
"Even if GNU had no technical advantage over Unix, it would have a social
advantage, allowing users to cooperate, and an ethical advantage, respecting
the user's freedom."
Stallman and the FSF began work on the building blocks for an operating system
in the 1980s. This effort started with development tools such as editors (like
n93 and compilers (like the GCC).
n94 In 1989, the FSF came out with the first version of the GPL. The GPL was
designed to drive the software industry toward the
"free software" model. As one FSF document points out:
If we amass a collection of powerful GPL-covered libraries
n95 that have no parallel available to proprietary software, they will provide a
range of useful modules to serve as building blocks in
[*339] new free programs. This will be a significant advantage for further
free software development, and some projects will decide to make software free in order to
use these libraries. University projects can easily be influenced; nowadays, as
companies begin to consider making software free, even some commercial projects
can be influenced in this way.
The GPL helps advance the FSF's goals by forming a kind of club. As the FSF
views it, the people who develop software under its licenses are members of a
special club; anyone wanting to distribute modified versions of the club's
software must make the source code for the modified software available
(essentially without charge) to the other members of the club:
We encourage two-way cooperation by rejecting parasites: whoever wishes to copy
parts of our software into his program must let us use parts of that program in
our programs. Nobody is forced to join our club, but those who wish to
participate must offer us the same cooperation they receive from us.
2. Copyleft and the Viral Aspect of the GPL Promote the Goals of the FSF
The GPL has been extremely important in shaping the development and evolution
of open-source software. We now turn to a more detailed interpretation of the
obligations the GPL imposes on people who use software covered by the GPL.
The viral nature of the GPL results from the following requirement, which is
You must cause any work that you distribute or publish, that in whole or in
part contains or is derived from the Program or any part thereof, to be
licensed as a whole at no charge to all third parties under the terms of this
[*340] The copyleft provision means that if people choose to distribute software that
is based on other software covered by the GPL, they must distribute their new
software under the GPL. GPL software thereby propagates itself. The GPL is
designed to prevent precisely what the BSD-style licenses expressly allow:
modifying a program and distributing it without making public the modified
source code and without granting others free use of the modified source code.
Copyleft makes it essentially impossible for anyone to develop proprietary
commercial software using code subject to the GPL.
Importantly, there is some ambiguity over when
"contact" with a program licensed under the GPL infects other work. That is because the
"work ... derived from the Program"
"based on the Program" are not clear. The license explicitly states that
"mere aggregation of another work not based on the Program with the Program (or
with a work based on the Program) on a volume of a storage or distribution
medium does not bring the other work under the scope of this License." But it also states that
"derivative works" include software
"containing ... a portion of" a program covered by the GPL.
One interpretation is that using a single line of code from a GPL program in a
new program is enough to qualify the latter as a
"derivative work," requiring that it be licensed under the GPL.
n102 Proprietary programs can use or communicate with GPL programs in some limited
ways without themselves becoming subject to the viral license condition, but
the FSF recognizes that the dividing line can be murky.
[*341] The terms of the GPL apply only to the distribution of software licensed under
the GPL, although the definition of
"distribution" in this context is unclear. An enterprise may be able to modify a GPL program
and use it internally without being legally bound to make the modified source
code available to others. On the other hand, if the same enterprise distributed
its modified GPL program to a subsidiary, the terms of the GPL might well
require it to make the source code available to all comers.
B. Production of Open-Source Software
Open-source software has primarily been developed by individuals who donate
their time to work on projects that interest them. The original developers
typically begin work on idea that they find interesting, useful, or both. They
eventually solicit support from other interested programmers, often
communicating over the Internet. Programmers, including the original
developers, may come and go during the course of the project as they complete
work and as their interests wax or wane. A core group, often consisting of one
or more of the original developers, has the responsibility of suggesting and
incorporating changes. Modified versions of the source code are posted on the
Internet and available for free to anyone who wants to use or modify it
further. Over time, users may end up running the software with different
hardware/software combinations than did the original developers, identifying
either problems that had originally escaped detection or worthwhile features to
add. These users can provide feedback to the developers (or become developers
themselves). Through this ongoing process the software becomes tested,
debugged, and developed.
This approach differs from the commercial approach in many ways. First, there
is typically little analysis of consumer needs. Programmers may ask themselves
"what would I like my software to do?" which may then be augmented by self-selected user feedback. Second, there is
little extensive, formal testing of the type that commercial firms often must
n105 Testing is instead performed in uncontrolled environments,
[*342] much like
"beta" tests for commercial software developers (although perhaps with more
sophisticated users providing feedback to the developers). Third, the
development of open-source software is less structured than is the development
of proprietary software. Some might consider the lack of structure a benefit,
since innovations can come from anywhere, while others might consider it a
potential hindrance, since it may prove difficult to move a project forward on
a coherent basis.
C. Incentives for Participating in Open-Source Projects
The incentives for writing open-source software differ from those for
proprietary software. Understanding these incentives is important in order to
make conjectures about the evolution of open source. There are two major
economic possibilities: individuals choose to develop open-source software,
essentially in their spare time; or firms pay programmers to develop
open-source software. A non-economic possibility is that governments or
universities choose to fund the development of open-source software; that is a
policy issue that we discuss below.
1. Why Individuals Work on Open-Source Software
Why programmers donate time to open-source software projects is a subject that
has generated considerable discussion.
n106 Open-source advocates have suggested several motives, four of which involve
. It is fun. Since a programmer is free to pick and choose among open-source
projects, he need only work on matters of interest.
. It is prestigious. Success at open-source development rates highly among
those whose opinions the programmers most value - other programmers.
"scratches an itch."
n107 Programmers attack problems that they personally face
n108 or because they are intrigued by the intellectual challenge.
. It meets an ideological urge - the desire for
free software and concern over Microsoft's
"domination" of software.
"scratches an itch" motive has been considered by some analysts as leading to something like a
cooperative of users. A number of developers pool their talents to develop
software they all consider potentially useful. With this type of motivation,
the GPL has sometimes been considered beneficial as an enforcement mechanism:
"copyleft," it ensures that no one can take the collective intellectual property, add some
private intellectual property, and treat the whole as a private good.
Open-source advocates like Eric Raymond generally dismiss the possibility that
financial rewards are the motivations,
n110 although Raymond does acknowledge
"it can get you a better job offer, or a consulting contract, or a book deal."
n111 This is similar to the signaling incentive that Lerner and Tirole explore.
n112 But according to Raymond, this sort of opportunity
"is at best rare and marginal for most hackers."
2. Business Models Based on Open Source
Unpaid volunteers are not the only possible source of labor for open source.
Businesses may have incentives to
"donate" labor to the development of open source, and in fact several have done so to
some extent; these are discussed below. These incentives depend on the extent
to which funding an open-source software project stimulates the demand for
other products or services sold by the firm.
The circumstances under which a for-profit firm has incentives to invest in
open source, particularly under the GPL, may be limited. Consider two otherwise
identical firms, where the first invests in developing open-source software and
the second does not. Whatever open-source improvements the first firm develops
(at least under the GPL) must be made quickly available to the second firm. So
unless the process of open-source development creates parallel commercial
opportunities, the first firm will necessarily have higher costs than the
second. To put it another way, the first firm can expect to succeed only if
open-source investments give it credibility unavailable to the second firm, a
shorter lead time in developing commercial products or services, lower costs
for the other products and services, or some other benefit that more than
offsets the cost of devoting resources to open-source software.
Published articles on commercial firms and open-source software sometimes
confuse the issues of using versus developing open source.
n114 Any number of firms can have incentives to use open-source software. For
example, a firm deciding what Web hosting software to use might well consider
the Apache Web server (open source but not GPL) as well as server software from
Sun, Microsoft, and many other firms. Decisions about software use would
normally be based on standard commercial considerations: features, stability,
speed, ease of use, other characteristics, and price. For some firms and some
software, the ability to modify the source code might be perceived as yet
another useful characteristic. For other firms and other software, the
availability of the source code would provide few, if any, benefits.
The issues are much different, however, when it comes to incentives for firms
to develop open-source software, particularly GPL software.
[*345] Here we consider three major ways in which firms may find that developing
open-source software helps them sell complements: proprietary software,
hardware, and services.
Although some open source advocates have been bullish about the potential for
firms to build profitable businesses around the development of open source,
others are more skeptical (and the more purely ideologically motivated simply
do not care). For example, Bruce Perens, primary author of
"The Open Source Definition,"
n115 recently stated:
[Michael Robertson of Lindows.com] also commented about the lack of successful
Linux companies. This is not due to the community treatment of Linux
businesses, but the fact that Open Source is not a business and should not be
treated as one. It's successful when operated as a cost-center, in businesses
that make their money some other way. The most successful ones use the software
they develop for some business purpose: for example, Apache developers use the
software to implement web sites for their business, IBM and HP make money by
selling hardware that runs with Linux, not by selling Linux. Eric Raymond and
others theorized that support would be a good way to fund Open Source, but the
support model has under-performed so far, because the early adopters are too
self-supporting. Sales of proprietary software to support the Open Source
development are also underperforming, as Linux customers, even within the
Fortune 500, have become wary of dependence on non-Open-Source. Thus, no Linux
distribution has been more than marginally profitable so far. My surmise is
that over the long term a non-profit like Debian supported by hardware
manufacturers and other businesses will work best.
We now examine some of the business models that Eric Raymond has identified as
possible ways that for-profit firms can try to make money by developing
n117 For each of these business models, we identify firms that appear to have tried
to use them; we also assess the degree to which they have succeeded or failed.
a. Sell Complementary Software
Under this approach, businesses use open-source software to help promote
proprietary software, subscriptions, or advertising revenue from a Web portal
site (such as www.msn.com, www.netcenter.com, or www.yahoo.com).
n118 For example, a business could promote open-source client software for desktops
or laptops to help sell proprietary server software or to drive traffic to a
"Complementary" software might be a specialized version of the open-source software or
proprietary software that works in conjunction with the open-source software.
For the complementary software strategy to work, the complementary commercial
product's profits must be sufficient to compensate for the cost and risk of the
investment in the open-source project.
Given the ideological issues surrounding the GPL, there is a tension inherent
in this business model: how can a firm that wants to market proprietary
software support the GPL, which is designed to drive proprietary software out
of use? But some firms do support the development of GPL software in
conjunction with their own proprietary software. In addition to IBM, discussed
below under hardware vendors, the most public of the firms involved in
developing GPL software have included Corel, Ximian, theKompany.com, and MySQL.
Corel came out with its own Linux distribution and developed installation and
other tools to make it easy to install. It also aided the WINE project
n120 while adapting (or
"porting") its proprietary WordPerfect Suite to run on Linux. Corel has since shed its
Linux work and has discontinued development of the Linux version of its office
n121 As Perens
[*347] explained, it seems Corel was unable to make money by selling Linux; it did no
better in trying to sell WordPerfect for Linux. Thus, this effort must be
tagged as a failure.
Ximian has developed a GPL program called Evolution that runs on Linux;
n122 it has also been a major contributor to other open source projects like GNOME,
"desktop" user interface for Linux and other Unix-like operating systems. Evolution
mimics the operation of Microsoft Outlook, which provides e-mail and other
capabilities. Ximian offers a proprietary program that allows Evolution to work
with Microsoft's e-mail server, thereby gaining the same types of capabilities
on Linux that are available to users of Outlook.
n123 This product is too new to evaluate as a success or failure.
theKompany.com has also developed both GPL and proprietary products. For
example, it developed a specialized graphics program, Kivio (which has
capabilities similar to Microsoft's Visio).
n124 Kivio ships under the GPL as part of the KOffice suite for the KDE desktop for
Unix-like operating systems. The firm has announced two ways it hopes to make
money from this: offering proprietary add-ons to this program; and (soon)
offering an enhanced version of the program that runs not only with KDE but
also with Windows.
n125 The firm also has announced, however, that it will not use the GPL for future
products because of the lack of profits.
n126 Its use of the GPL should therefore be classified as a long-run failure.
MySQL AB is a firm whose major product, a database, is licensed (primarily)
under the GPL.
n127 In part, MySQL earns revenues by providing support services to its database
users (services that, in
[*348] principle, could be provided by any third party who sufficiently studied the
product). But MySQL also earns revenues by licensing its flagship product
(i.e., exactly the same program that it licenses under the GPL) to firms that
want to combine their software with MySQL's in ways that would not be permitted
under the GPL. MySQL can follow such a mixed licensing strategy because it owns
copyright on its software. To date, MySQL appears to be successful.
b. Sell Complementary Hardware
Investing in open-source software could increase the demand for hardware or
cut the costs of producing complementary software that is bundled with the
hardware. IBM is perhaps the most public
"success" story for a hardware firm supporting the development of open-source software.
Some, but not all, of the software, is under the GPL.
n129 IBM claims to have invested $ 1 billion (including marketing expenditures) for
a variety of open-source initiatives, including adapting Linux (GPL) and Apache
(not GPL) to IBM's various computer hardware platforms.
n130 IBM's hardware business is unusual because it markets several fundamentally
different types of servers with mutually incompatible operating systems.
n131 Linux permits IBM to unify its server product line, so that proprietary IBM
software (and other software) can be used on all the different servers. IBM is
also unusual for a hardware company because it
[*349] is also one of the world's largest software vendors.
n132 IBM uses Linux (and other open-source software) to help promote sales of both
its hardware and proprietary software. We are aware of no other firms in a
situation like IBM's.
Intel has supported work on Linux, in part through the provision of hardware
and other resources to developers. Intel has a clear interest in wanting
high-quality operating systems that run well on computers powered by its
processors. To encourage the development of software that takes full advantage
of its processors, Intel provides a variety of software, including system
libraries, test suites, programming tools, and experimental code.
n133 We know of no other major hardware vendors that have publicly announced major
initiatives to encourage the development of open-source software, although some
hardware vendors, such as Hewlett Packard, have developed Linux drivers for
n134 In addition, Hewlett Packard has recently supported the development of open
source kernel extensions such as openMosix for the IA64 microprocessor family.
n135 And Hewlett Packard also
"sponsors" or is a member of a variety of open source organizations.
n136 Some other vendors have announced support for open source in more modest ways.
There are some conflicts between the goals of profit-oriented hardware
companies and the open-source movement. Hardware companies want to
differentiate themselves from each other, and software is one
[*350] dimension on which they have tried to do that. The
"Unix wars" of the 1980s are a good example; competing hardware vendors (IBM, Sun, SGI,
Digital, Hewlett-Packard, and others) offered proprietary, and deliberately
incompatible, versions of Unix to differentiate their products. Open-source
advocates, and especially those responsible for Linux, want to prevent
open-source code from
"forking" into mutually incompatible versions like Unix. But a standard version of Linux
might result in problems for hardware companies. It might reduce barriers to
entry into the manufacturing of high-end computers, much as the widespread use
of a proprietary standard (MS-DOS and then Windows) reduced barriers to entry
into personal computers. That would hurt IBM and either reduce IBM's incentives
to invest in Linux or encourage IBM to figure out ways to differentiate the
flavor of Linux that ran on its machines.
c. Sell Complementary Services
Firms can attempt to make money from developing open-source software by
selling associated services. Although a firm would not necessarily need to
invest in writing open source code, by doing so it may obtain specialized
knowledge about open source that could be helpful in providing better services.
Or, it might obtain credibility about open source that would improve its
ability to market its services. Several companies have followed this approach
to various degrees. Cygnus Solutions was heavily involved in developing and
maintaining the open-source GNU compilers. It sold support for these products,
and it contracted with hardware firms to develop versions of the compilers for
new chips. Cygnus's familiarity with these compilers may have given it a cost
advantage over other firms in doing so. Cygnus Solutions was purchased by Red
Hat, a Linux distribution company, in 1999.
Red Hat and other Linux distributors arguably sell a service, namely
"the value added by assembling and testing a running operating system that is
warranted (if only implicitly) to be merchantable and to be plug-compatible
with other operating systems carrying the same brand."
n139 However, there appear to be few barriers to entry to such a business; with low
entry barriers, it is difficult both to make a profit and to fund the
development of Linux or other open-source products. This is particularly true
when other firms can (and do) copy what (for example) Red Hat
[*351] chooses to distribute,
n140 thus severely limiting what Red Hat can charge for its distribution. Several
Linux distributions have reported rocky financial results within the last year,
and even Red Hat cannot be considered a resounding financial success.
Several firms that support open source announced plans to offer automatic
software updating services in connection with their open-source work: Red Hat,
Eazel, Caldera, and Ximian. Red Hat and Ximian were mentioned above.
n142 Eazel, which developed a file management tool under the GPL, no longer exists.
n143 Caldera, a Linux vendor that is not entirely happy with the GPL and sells
proprietary software as well as Linux, offers a similar service.
n144 Entry into an industry like this does not seem particularly difficult, again
making it difficult to both cover costs and fund open-source development.
D. The Performance of Open Source
Open-source production methods have created several software products that are
widely used in their relevant categories. After reviewing these successes, we
summarize the status of open-source projects under development. An
understanding of where and why open source has
[*352] succeeded and failed is needed to evaluate policies designed to promote open
1. Successes and Failures of Open-Source Software
It is useful to divide the successes into those distributed under the GPL and
those under BSD-style licenses.
a. GPL Successes
The MySQL database and Samba, software that lets servers running Linux and
other Unix-like operating systems emulate Windows servers, have been widely
n145 Linux, however, is probably the most famous GPL software. Linux is an
operating system widely popular on server computers but, at least relatively,
much less so on client computers.
"Clustering" software for Linux, creating relatively inexpensive
"supercomputers," might also be judged a success.
n147 The development tools from the GNU project (such as the Emacs editor and the
GCC compilers) probably are not as widely used as many commercial development
tools, but they are widely used by open-source developers.
The GNOME and KDE desktops for Linux and other Unix-like operating systems
should probably be considered qualified successes. They provide graphical user
interfaces for these operating systems. Although the interfaces are somewhat
like those for Windows and the Macintosh, they are not yet as user-friendly.
These desktops are not widely used because of Linux's relative lack of success
on client computers, but they may have promise if they and Linux continue to
improve for use by non-technical users.
b. BSD-Style Successes
The list of famous successes under BSD-style licenses seems longer than those
under the GPL. The BSD family of Unix operating systems has a long history -
the first computers from Sun were based on it, as were many others. The most
popular open source versions of BSD Unix that are currently available (FreeBSD,
OpenBSD, and NetBSD) do not seem to be as popular as Linux, with one partial
exception: Apple's latest operating system (Mac OS X) is based on a version of
n148 Apple's user interface is not open source, but the BSD Unix that underlies it
is open source.
n149 Two other key pieces of software emerged from work done at Berkeley roughly
two decades ago: BIND and Sendmail.
n150 Current versions of BIND are widely used on servers for resolving Internet
addresses, converting Web addresses (like www.nera.com) to IP addresses (like
n151 Sendmail was the first modern e-mail server software and is still widely used.
Other widely-used open-source projects also have BSD-style licenses. Three such
pieces of software are Apache, Xfree86, and Perl. Apache, described previously,
is perhaps the most widely used Web server software.
n153 Xfree86 is an implementation of a windowing system for Linux and other
Unix-like operating systems for Intel-compatible computers. Xfree86 seems to be
included with essentially all Linux distributions and is usable on both clients
and servers. Perl is a scripting language widely used on servers and on clients
c. Some Failures
In general, open source has not been successful in developing user-friendly
software aimed at mass-market users. Office suites have generally not
succeeded. This may change since new suites are under development in
conjunction with both the KDE and GNOME desktops, but neither can yet be
considered a success.
n156 The best of the existing open-source office suites is probably OpenOffice.
n157 OpenOffice is based on the source code for StarOffice, a proprietary product
acquired by Sun. StarOffice's use was too tiny for market research firms to
measure when Sun acquired its developer.
n158 Games are a large software category for PCs and game consoles, but we are
unaware of any commercial-quality games developed under the GPL.
2. Open-Source Projects under Development
A large number of open-source projects are currently under development. Most
of these projects seem to rely on the GPL rather than licenses with fewer
commercialization restrictions. SourceForge is a Web site that provides free
hosting services to open-source projects.
n159 In early May 2002, 38,610 projects were hosted on SourceForge.
n160 Of these,
[*355] 25,194 projects provided information on the licenses used (some projects use
multiple licenses). Of these, 18,133 used the GPL at least in part, and 20,220
used either the GPL or the LGPL (the Lesser General Public License), a cousin
to the GPL, also favored by the FSF for some purposes.
n161 The GPL therefore accounts for 47 percent of the projects hosted at
SourceForge and 72 percent of the projects with a known license type. Combined,
the GPL and LGPL account for 80 percent of the projects with a known license
SourceForge provides other useful information (at least for projects hosted at
that site) on the types of open-source projects currently under development and
who the intended audiences are for these projects. Of the 25,852 projects whose
development status is known, only 4,712 (18 percent) had reached either the
"production" or the
n162 The rest were in various planning or development stages. The number of
projects with information on
"intended audience" came to 25,402; of these, only 56 percent
"end users/desktop" among the intended audience (again, projects could have multiple intended
audiences). In contrast, 75 percent had developers or system administrators
among the intended audience.
Only tentative conclusions can be drawn from these numbers. It seems clear,
however, that GPL is by far the most popular license among currently active
open-source projects. It also seems clear that end users are not the main
audience of open-source developers since developers or system administrators
were more often the intended audience.
Open-source software has succeeded in only some areas. The lack of property
rights in open-source software means that, except in special circumstances,
firms have little or no incentive to devote substantial resources to the
development of open source. Firms that concentrate on the distribution of
open-source software (such as Red Hat and other Linux distributors) are in an
industry with essentially free entry, so they can charge little more than their
[*356] costs for their distribution services;
"buying" more software from them is likely to have little or no effect on the supply of
programmers to develop open-source software.
Part V. Comparisons of Proprietary and Open-Source Software
Some government policy proposals have been based on claimed advantages of
open-source software over proprietary software. We compare open-source and
proprietary software in two ways in this section. Section A examines the
advantages and disadvantages of both approaches. Section B examines an oft-made
claim that the open-source approach results in more innovation. Section C
considers the evolution of open-source and proprietary software under
A. Advantages and Disadvantages of Each Approach
The relative advantages and disadvantages of open-source and proprietary
software are, of course, mirror images: what is an advantage for open source is
a disadvantage for proprietary software; what is an advantage of proprietary
software is disadvantage for open source.
1. Open Source
Open-source software in general, and GPL software to some extent, has several
strengths. One involves the use (as opposed to the creation) of intellectual
property. Intellectual property may be expensive or difficult to create, but,
once created, the marginal cost of using it is zero. As a result, society
benefits most from an already-created piece of intellectual property when it is
made available to all for free. Open source more or less does this, with the
GPL being less attractive than other open-source licenses to commercial firms
in this regard. Using code licensed under the GPL can impose restrictions that
using code available under other licenses do not; namely, the inability to mix
that program code with proprietary program code.
The availability of source code for open-source programs means that technically
adept users can tailor the software to their particular needs. They can also
fix bugs and provide those fixes to other users. These advantages will appeal
more to business users than to typical home users, of course, since medium and
large businesses are likely to have technically adept staff to maintain their
networks and corporate software.
Since technically adept users can inspect the source code if they so desire, it
is possible that they might be able to create bug fixes more
[*357] quickly than occurs with proprietary software; whether such bug fixes can
easily be put into the hands of general users is less clear.
At least in theory, open source may be more protective of
"privacy" than proprietary software. With open source, it would be difficult for a
programmer to include code that would
"spy" on unsuspecting users because other programmers could simply remove such code.
Whether this theoretical advantage is a real-world advantage is not clear,
since there is little evidence that commercial software engages in such
Because the source code is open to all, open-source developers have limited
opportunities to earn a pecuniary return on the time and effort invested in
their work. As discussed above, non-pecuniary rewards can certainly provide
some motivation, but they do not appear any more important in software
development than in other fields. The limited pecuniary rewards available to
open-source developers will tend to limit the supply of effort devoted to these
Firms likewise have limited opportunities to earn pecuniary rewards for their
investments in open-source projects. As a result, they have limited incentives
to perform the types of often costly consumer research into usability and
consumer needs that proprietary developers do in order to market to mass-market
consumers; they have no easy way to earn a return on any such investments. As
the SourceForge data suggest,
n166 open-source projects are more often aimed at technical users, which sidesteps
the usability issues. Similarly, the development process provides few
incentives to identify and eliminate issues that might be problems for the less
technically inclined. A government mandate that government employees (or
citizens) use open source will force people to use software that is, on
average, hard for them to use.
Open source is also subject to
"fragmentation" (i.e. the creation of multiple incompatible versions of the same software).
Different Linux distributions, for example, have taken different approaches to
organizing where operating system and other files are stored. This makes it
difficult for developers of applications for Linux to develop installation
routines: a routine that works for one Linux distribution will not work on
n167 Linux has not yet fragmented to the same extent as Unix, and perhaps it never
will, but Linux distribution differences have posed problems to developers and
n168 Additionally, to the extent that open-source users take advantage of one of
the claimed benefits of open source, their freedom to modify and customize
code, fragmentation occurs.
2. Proprietary Software
As with other industries based on intellectual property, the possibility of
earning returns on an investment encourages firms to make the initial
investment. For example, one of the big movies of 2001 was the first
installment of Lord Of The Rings. The movie's creators would have no incentive
to devote as much time, effort, and money into the script, stars, and special
effects if everyone who saw the movie could legally distribute copies to
everyone else. Software is no different in this regard. The extent of
intellectual property protection that computer software should receive might be
debatable, but it is untenable, from an economic perspective, to argue that no
protection should be available.
With proprietary software, a firm can control the destiny of its products. With
this control, the firm has profit motives to make its products highly valued by
consumers. As a result, vendors typically try to make their products backwards
compatible with earlier versions, so that documents and user training can
experience a smooth transition from an older version to a newer one.
The issue of fragmentation is related. One strength of both Windows and the
Macintosh is that they provide consistent platforms on which applications can
n169 Developers for Windows (or the Macintosh) know that if they write their
programs in certain ways, these programs should run on all computers meeting
specific hardware and operating system requirements (e.g., Windows ME, Windows
2000, or later; OS X
[*359] or later). This is not true for Linux developers because of the free-for-all
customization possibilities. A developer who wants to write a program that
permits the linking of objects (such as putting a graph from a spreadsheet into
a word processing document) can readily do so on either Windows or the
Macintosh using standard methods for each; someone wanting to do so for Linux
faces an uphill battle.
A technically adept user who encounters a bug in a proprietary program cannot
fix it himself; the most he can do is report the bug and hope a fix is made
available soon (but the vendor of a proprietary program has financial
incentives to make it easy for users to obtain and install bug fixes, in order
to keep customers happy). Similarly, a technically adept user cannot customize
a proprietary program except in the ways the vendor has chosen to make the
program extensible. Neither of these issues is important to the vast majority
of home users, but they can be important to large customers. Even if the
program vendor eventually releases a version with features more to the liking
of a given user, the technically adept user might have been able to implement
those features more quickly on his own.
B. Open Source: Innovation and Imitation
"innovation" have sometimes debated whether the term should refer to the invention of
technology or the popularization of technology.
n171 By either measure, open-source software seems to have performed poorly.
Although there are important exceptions, discussed below, the open-source
movement has focused mainly on developing software that imitates successful
proprietary software. Some of the early efforts under BSD-style licenses seem
to have been truly innovative. Some of these early efforts are BIND, the BSD
family of operating
n172 Sendmail, perhaps Perl, and the X Window system and its Xfree86 implementation
for Intel-compatible computers. Apache (another BSD-style license) came a bit
later but also has some claim to being innovative.
On the other hand, some of the early efforts from the FSF (now often licensed
under the GPL) and many modern projects seem more derivative, less innovative,
and sometimes downright imitative. One of FSF's original objectives was to
imitate Unix to develop a
"free" version. The FSF work began with development tools, which was also an
imitative step. The Linux kernel (leading to the numerous Linux distributions
available today) was likewise an attempt to imitate the functionality of Unix.
The GNOME and KDE desktops do not clone the user interfaces of either Windows
or the Macintosh, but they attempt to bring the same kind of usability to
Unix-like operating systems. Samba is an explicit attempt to clone the
functionality of Windows servers for use with Linux and Unix servers. MySQL is
an implementation of a database with a standard set of capabilities (called
Structured Query Language, or SQL).
Some observers have suggested that the open-source method tends to promote
innovation more than the proprietary method and that the development method
itself promotes innovation. For example:
The development model encourages tremendous innovation. When developers can see
and modify source code, they receive rapid feedback and a constant flow of
ideas from other developers.
Other factors are also clearly at work, however since copying and cloning are
easier than innovating. For example, a recent interview with a Miguel de Icaza,
key open-source developer, discussed a recent attempt called Mono to clone new
computer language technology from Microsoft (part of what Microsoft calls .Net):
[Miguel] found a certain utility in the specification that lies at the center
of .Net. That, coupled with the sentiment
"It's a lot easier to implement than to design" an architecture, led Miguel and friends to start the Mono project.
[*361] In addition, Lawrence Lessig has argued that open source contributes to an
"commons," which can serve as a springboard toward further development.
n175 He considers several open-source projects to constitute the
"soul" of the Internet: Linux (an operating system), Apache (a Web server), Perl (a
scripting language), BIND (domain name software), and Sendmail (an e-mail
n176 Professor Lessig also said:
Together with the public domain protocols that define the Internet ... this
free code built the Internet. This is not a single program or a single
operating system. The core of the Internet was the collection of code built
outside the proprietary model.
Not strong, perfect control by proprietary vendors, but open and free
protocols, as well as open and
free software that ran on top of those protocols; these produced the Net.
This is not quite right. It is true that the Internet has been built on open
and free protocols, but open protocols are conceptually very different from
n179 And it is true that the Internet grew up around some of the products that
Professor Lessig considers its
"soul," particularly BIND and Sendmail. But what was the direction of causality? The
Internet was not made commercially available until 1991 when the U.S. National
Science Foundation removed restrictions on commercial use of NSFNET.
n180 It was originally developed under government sponsorship to connect computer
groups at universities and other research institutions. Until the Internet
became commercial, there was little reason for firms to attempt to write
proprietary software for it. The early, non-commercial Internet more resembled
the mainframe era of the 1960s, with software usually written by its own
technically adept users rather than the commercial software era that roared
into action in the 1980s with the widespread adoption of PCs and the
development of corporate networks of PCs.
[*362] Of the five
"soul" projects, Linux was the only one released under the GPL. The other products
are all available under less commercially restrictive licenses.
"innovative" were these projects? As economists, we do not pretend to provide firm answers
to these questions. As noted above, Linux began life explicitly as an attempt
to clone Unix. The quality of Linux may well be high, but it seems imitative,
n182 Our understanding is that BIND helped make the Internet possible,
n183 and Sendmail ushered in the switch from older Internet e-mail to more modern
n184 Perl was not the first scripting language,
n185 but it does seem to have gained rapid acceptance and is widely used for some
n186 Although Apache was neither the first nor only
n187 Web server, it is directly descended from
"patches" (hence the name) to the early NCSA Web server, whose development had stalled.
n188 Thus, on balance, Apache's heritage and wide popularity suggest it should be
considered innovative. These four products, all available under BSD-style
licenses, have stronger claims to being innovative than does Linux.
Of course, pointing out a few products that may be innovative, and contrasting
with a few that may not, provides little to support the contention that
open-source software was not innovative. What should be considered innovative?
This is, even in principle, a difficult question to
[*363] answer. Consider the following questions in the category of word processing
. Word processing software was available for minicomputers and dedicated word
processing machines before personal computers even existed. Were early word
processing programs for personal computers innovative?
. Was the integration of spelling checkers (and other features of modern word
processors - table handling, equation editors, graphics editors, etc.)
. Was the development of graphical word processors (true
"what you see is what you get") innovative?
The breadth and depth of currently available commercial software came, in
general, from investments made in pursuit of profits. Many products have copied
their competitors and improved their features. That is the nature of the
competitive process. But the spreadsheets, word processors, presentation
graphics, multimedia encyclopedias, video games, graphics arts, and other
commercial products of today bear little or no resemblance to their forbearers
(if any) 25 years ago. Clearly, much innovation in commercial software has
occurred over those 25 years. Just as clearly, much (but certainly not all) of
the focus of GPL software over the past two decades has been on creating
"free" versions of proprietary software, as even a cursory glance at the projects
hosted on SourceForge reveals.
C. The Future Evolution of Open Source without Government Favoritism
Absent government favoritism for (or against) open-source software, software
users will choose software that best suits their needs, taking into account
price, quality, ease of use, support, and other characteristics that they
consider important. As discussed above, nothing in the history of commercial
software suggests that self-interested consumers will make ill-informed
decisions; software market leaders can and do get replaced.
n190 For some types of customers and software, proprietary software is likely to be
more successful; for other types of customers and software, open-source
software is likely to be more successful.
[*364] Open source has proved useful in numerous areas managed by the technically
adept: operating systems, file servers, Web servers, mail servers, and
development tools for all of the preceding. Open-source products have made
substantially less progress in areas that interest mass consumers, who value
ease of use far more than do the technically adept. Open-source products,
however, will certainly continue to provide competitive pressure to proprietary
software developers. This pressure will likely persist because the open-source
production method is geared towards serving the technically adept and not the
n191 Even some major proponents of open-source software take that view.
Whatever happens to open source generally, Linux appears to have taken on a
life of its own. Linux may succeed at something that has eluded hardware and
software vendors for over a decade: unifying Unix. For a variety of reasons,
Unix fragmented into many not-quite compatible flavors in the 1980s and 1990s.
Some attempts were made to unify Unix,
n193 but today, the integrated server vendors and integrated workstation vendors
continue to ship their own Unix flavors: Solaris, AIX, HP-UX, Irix, Tru64 Unix,
and so forth. Some vendors, most notably IBM, are now interested in Linux.
n194 Others are less so. For example, Sun uses Linux on low-end servers based on
n195 but it uses only its own version of Unix on all computers based on its own
SPARC processor family.
An advantage of supporting Linux is that a computer vendor can rely on others
to incur most of the costs of developing the operating system;
[*365] the computer vendor then only incurs costs of fine-tuning Linux for its own
hardware. A disadvantage is that relying on Linux would eliminate the operating
system as a point of differentiating the vendor's integrated product from those
of its competitors (one of the reasons why Unix fragmented). Although Linux may
have the potential to unify Unix, the scope of that potential is unknown.
Moreover, Linux faces its own potential for fragmenting, as discussed above.
Part VI. Government Interventions in the Software Market to Assist Open Source
Governments use significant amounts of computer software. The U.S. government
alone spent $ 3.7 billion on prepackaged software in 2000.
n197 State and local governments spent another $ 4.5 billion on prepackaged
software in 2000.
n198 Like profit-maximizing businesses, governments usually make decisions to use
proprietary or open-source software for particular applications based on the
merits. In some cases, open-source software is better than proprietary software
with regard to price, technical advantages, or both. In other cases,
proprietary software may be the best choice because its technical superiority
outweighs the fact that the open-source alternative provides the source code
for free. Or, there may be no open-source alternative. For example, the
Bundestag in Germany recently decided, based in part on a study it
commissioned, to use Linux on most servers while using Windows for clients on
n199 While one could argue whether this is the right decision and insinuate that
the Bundestag had other motives, it is indistinguishable from similar decisions
made by profit-maximizing businesses.
However, proponents of open source have lobbied governments around the world to
provide various preferences for open-source software. Richard Stallman recently
copyright and open-source software before the Brazilian Congress.
n200 But, support has also come
[*366] from outside the open-source community. For example, as will be discussed
infra, Professor Lessig argued that governments should support open source.
n201 Governments have established study groups to consider government support for
open source, and politicians in many countries have introduced legislation to
help open source. Few governments, to date, have enacted explicit preferences
for open-source software; the most prominent are a handful of Brazilian cities.
This section examines whether there is an economic rationale for having
governments provide preference to open-source software. Are there reasons to
believe that market competition between proprietary and open-source software
will fail to achieve the socially optimal mix of these two kinds of software?
If so, are there reasons to believe the government interventions can increase
social welfare by giving open-source software some form of boost? If not, to
what extent could government interventions in favor of open source reduce
Section A explains the economic approach to analyzing whether government
intervention into the marketplace is desirable. The answer turns on whether
there is a market failure and whether there is a government solution that can
make things better. Section B presents a survey of government proposals and
initiatives concerning open source. The public rationales for preferring open
source range from the purely technical to the purely ideological. Only a few of
these rationales involve even the suggestion that there is a market failure
that needs to be corrected. Section C considers the two possible economic
arguments for granting preferences to open source: that open source is more
innovative but would otherwise be underfunded in a market economy and therefore
should get special treatment; and that the government should encourage
open-source software - especially Linux - to provide a competitive alternative
to proprietary software - generally with Microsoft in mind. Section D evaluates
from an economic standpoint a particular government policy that would require
that the results of certain government-funded software development be issued
under the GPL.
A. The Economic Approach to Government Intervention
Modern economics starts with the proposition that market forces generally do a
rather good job by themselves at maximizing social welfare which is measured,
roughly speaking, as the value that society gets from its scarce resources.
There is a body of theoretical literature,
[*367] starting with Adam Smith's Wealth of Nations,
n202 that explains how the selfish actions of individuals and businesses result in
the production and allocation of goods and services in a way that tends to make
the group as well off as possible. As Smith put it, every individual is
Led by an invisible hand to promote an end which was no part of his intention.
Nor is it always the worse for the society that it was no part of it. By
pursuing his own interest he frequently promotes that of the society more
effectually than when he really intends to promote it.
Modern mathematical models explain how this decentralized process maximizes
the collective good in formal terms.
A wide variety of practical experience generally supports the proposition - at
a very gross level - that market forces, and economies in which these forces
are left largely unfettered by government involvement, are better than their
alternatives at maximizing social welfare. Much of the 20th century was devoted
to the grand experiment to see whether controlled versus capitalistic economies
worked best; it ended with the large-scale collapse of the controlled ones and
the boom of the capitalist ones. Within the capitalist economies, government
efforts to regulate, or in some cases run, major industries such as the post
office, telecoms, airlines, and energy led to great dissatisfaction. Beginning
in the mid-1970s, this dissatisfaction spawned efforts to greatly reduce
government involvement in industry. The United States and Great Britain led
this trend, but other countries, such as France and Japan, have followed suit.
This is not to say that governments do not have any role in the economy or that
interventions by the government cannot improve on market forces in some
circumstances. Economists have identified two major conditions that are
necessary for an intervention to make the public economically better off.
First, identify a market failure - provide an explanation why the market,
presumed to be efficient most of the time, does not work. Second, identify a
government solution that is likely
[*368] to correct the market failure at a reasonable cost, without introducing other
Economists have identified many theoretical situations in which market forces
may not maximize public welfare. Indeed, a great deal of research in economics
in the last quarter century has shown that Adam Smith's Invisible Hand is not
quite as benevolent as he suggested. The Nobel Prize in Economics was awarded
in 2001 to three economists - George Akerlof, Joseph Stiglitz, and Michael
Spence - who identified a raft of problems over the years.
n205 Examples of situations in which market forces may not maximize public welfare
include the following, all long known to economists and governments:
1. Market economies tend not to produce and disseminate enough technical
knowledge. On the one hand, they may not produce enough because once technical
knowledge is produced, it is often technically easy for others to share in the
benefits without paying for the costs; if incentives do not exist to produce
technical knowledge, it will not be produced. Once technical knowledge is
produced, market economies may not disseminate it enough because those who
produce it may keep it a secret - even though it is costless to disseminate -
to protect their investment. The patent system is an imperfect government
method for remedying these failures; the government gives inventors a temporary
monopoly over their inventions in exchange for full disclosure.
2. Market economies find that in some industries only one firm can survive.
There is a natural monopoly in the sense that one firm can serve consumers more
efficiently than could two; but, undisciplined by competition, this monopoly
may charge too much and produce too little relative to what best serves the
public. Public utility regulation is an imperfect method for fixing this
problem; historically regulators have limited profits and prices. Market
methods - such as auctioning off monopolies - have become more popular over the
years, and intrusive government regulation less popular.
3. Private businesses do not consider the costs they impose on society when
they emit toxic substances; these
"negative externalities" can be controlled by government regulation.
At least since Ronald Coase's work,
n206 however, economists have recognized that government solutions do not always
make things better. First, there may not be a government solution that actually
fixes the market failure. Second, if there is, that solution may require the
creation of a costly government bureaucracy. Third, that solution may have all
sorts of side effects that cause many different market failures that cost the
public more than the original failure. Fourth, the theory of rent-seeking
suggests that, in certain cases, coalitions can work the political process to
get government interventions that benefit the coalition at the expense of the
public at large. These coalitions often justify interventions on the grounds
that they are needed to remedy a market failure. So, the fourth problem results
from erroneously and expensively fixing a market failure that may not have
existed in the first place.
Economists have widely acknowledged that government cures may be worse than the
disease. For example, Professor Stiglitz wrote:
Whenever there is a market failure, there is a potential role for government.
Government needs to consider each of the alternatives ... and assess the
likelihood that one or the other alternative will succeed. Such an assessment
may conclude that it is better not to intervene after all. Recent decades have
provided numerous examples of government programs that have either not
succeeded to the extent their sponsors had hoped, or failed altogether.
Professors Michael Katz and Harvey Rosen said:
It must be emphasized that while efficiency problems provide opportunities for
government intervention in the economy, they do not require it. That the
market-generated allocation of resources is imperfect does not mean that the
government can do better. For example, in certain cases the costs of setting up
a governmental agency to deal with an externality could exceed the cost of the
externality itself. Moreover, governments, like people, can make mistakes.
Indeed, some argue that the government is inherently incapable of acting
efficiently, so that while in
[*370] theory it can improve upon the status quo, in practice it never will. While
extreme, this argument does highlight the fact that the First Welfare Theorem
is helpful only in identifying situations in which intervention may lead to
greater efficiency. (emphasis in original)
As with most real-world markets, software markets do not work as perfectly as
a benevolent central planner would like. To begin with, most economic work
demonstrating the optimality of markets is based on assumptions that do not
apply to software. Most of this work applies to markets, such as that for
wheat, with thousands of producers competing with each other, full disclosure
of information on prices and quality, and a more or less static environment. In
contrast, the software industry involves substantial fixed costs, the creation
of intellectual property, and a substantial gap between prices and marginal
costs for successful products.
n209 Plus, the software market is dynamic and subject to rapid rates of
technological change, with leapfrogging competition between products.
n210 As noted above, however, the fact that competition in software does not
resemble that in wheat does not necessarily mean that the government should
step in and regulate the software industry.
Economists have only begun to analyze formally the properties of the kind of
competition seen in software, and the work has progressed slowly because the
problem is actually quite difficult.
n211 To date, only a
[*371] very few papers have attempted theoretical investigations of competition
between open-source and proprietary software. In general, these papers reach
conclusions that are consistent with the view that banning the use of
proprietary software (for all consumers or even just for government consumers)
would make consumers generally worse off.
Further, as discussed above, the history of the software industry suggests that
the industry has worked quite well from the standpoint of consumers without
government mandates concerning software. We saw earlier that output has
increased quickly, quality-adjusted prices have fallen, and innovation has been
rapid. All of these made consumers better off. Although firms have dominated
particular categories of software, at least for a time, the industry is fairly
unconcentrated and participants generally consider it highly competitive.
n213 These features, too, strongly suggest that the industry operates to the
benefit of consumers. There is a considerable amount of entry into and exit
from the industry, and key players turn over with some frequency. Economists
take these characteristics as showing the competitive health of an industry.
n214 Of course, there could be problems that need fixing and solutions worth
considering, but any such problems would need to be identified and solutions
targeted at those specific problems - not at the industry as a whole.
B. Governments Proposals and Initiatives Concerning Open Source
To understand current government thinking on open source, we have conducted a
survey of proposals and initiatives around the world. This
[*372] section presents the highlights. It begins by surveying some of the key
initiatives and then summarizes the most frequently mentioned rationales for
government to support these initiatives.
We begin with politico-economic observations: as users of software, governments
face daily decisions about what software to use. In general, these decisions
are no different than those that must be made by countless private firms and
individuals around the world. There are some differences, however. When
legislators get involved, these decisions are moved from the strictly
technical/economic arena to the political. Much the same is true when
administrators set up special commissions to consider whether to institute
government policies that favor open source. Decisions based on the merits would
not need such special commissions; for instance, private firms and individuals
make their decisions without commission recommendations. As a result, special
commissions, legislative proposals, and the like demonstrate that government
decisions may be made on grounds that a private company would not consider
(e.g., a private company's goal is to make money, not to please the voting
a. European Commission and European Parliament
The European Commission and the European Parliament have initiated a number of
studies of open source. Many of these studies have touted the benefits of open
source, and some have recommended affirmative efforts to expand the use of open
source by the Commission and by the Member States. The European Commission and
the European Parliament, however, have not approved any serious programs that
would promote open source at the expense of proprietary software. To take one
example, the Commission's Interchange of Data between Administrations (IDA)
program issued a study in June 2001 that concluded open source software is
"still not extensively used in most of the European Member States' public
"on general-purpose servers as well as on office desktop, Open Source software
will present tomorrow the most realistic, and sometimes the only real technical
and economical alternative to Microsoft products."
n215 The study also argued:
"the requirement of the use of [open source software (OSS)] should be justified
under Article 81, paragraph 3" of the European Community ("EC") treaty;
"software patents present a major threat concerning a fundamental liberty";
"OSS is considered to better respect standards";
"OSS in general and GPL in particular permits a greater rate of innovation, with
"with OSS you will have no (or less) backdoor(s), no electronic spy that may be
totally hidden somewhere in the software."
n220 Thus far, although the Commission appears to support open source, it has not
acted on these findings, which appear to have both economic and ideological
"fundamental liberty" has little to do with economics).
To take another example of support, the European Parliament adopted a
Resolution on September 5, 2001 that
"urged the Commission and Member States to ... promote ... European encryption
technology and software and above all to support projects aimed at developing
user-friendly open-source encryption software." Also, it
"calls on the Commission and Member States to promote software projects whose
source text is made public (open-source software)," and it asked
"the Commission to lay down a standard for the level of security of e-mail
software packages, and to place those packages with non-public source code in
"least reliable' category."
n221 The Parliament's recommendations are only that and were not adopted by the
Commission as far as we know.
The German government, however, has undertaken concrete initiatives to promote
open source and, along with France, is one of the most active national
governments in this field. On March 14, 2002, the Council of Elders, a joint
deliberative body whose task is to manage the internal affairs of the
Bundestag, arrived at a decision on the new Bundestag information technology ("IT") environment. It decided to follow the luK (eleven-member committee comprised
of representatives from major political parties) recommendation
n222 to install Linux on approximately 150 servers and Windows XP on 5,000 desktops.
n223 As noted earlier, the decision does not necessarily amount to a government
intervention in open source since governments, just like businesses, must make
IT decisions. However, numerous political statements in favor of open source
accompanied the debate in the Bundestag over the migration issue.
n224 These statements demonstrate that the bias towards open source is not based
entirely on technical and economic considerations.
The Bundestag had earlier passed a resolution on
"Germany's Economy in the Information Society" on November 9, 2001 explicitly to promote open source software in the federal
administration. Supported by the Social Democrats and Greens, the resolution
describes open source as a means to secure competition against dominant players
in software markets. It also listed the claimed advantages of open source:
stability, better potential to be tailored to users' needs, and high security.
[*375] The resolution called on the government to introduce open source in the
federal administration and stated open source should be used wherever it would
lead to cost savings. Again, any legislative intervention into an
administrative issue reflects an unwarranted attempt to interject political
considerations into what should be a technical/economic decision. The
resolution considers open source as a special opportunity for the European
The French public sector has widely adopted open source solutions since the
beginning of 1999 and continues to move in the direction of complete
n225 In fact, several governmental institutions have already switched to
open-source software. The Ministry of Culture and Communication has started a
massive migration towards Linux. Its stated objective is to achieve full
open-source infrastructure by 2005.
n226 Other agencies moving to open source include the Ministry of Justice, the
Department of National Education, and the Ministry of Economy, Finance and
Although these may well have been decisions on the merits, a number of
proposals have been made in France that open source should be chosen because it
helps achieve other social objectives. Two bills, neither of which was enacted
into law, illustrate some French views on open source. One parliamentary bill
submitted in December 1999 would require that all software used by the
government be open code and would create an open source agency to oversee the
n228 Another bill, submitted in May 2000, made a number of points about software:
1) software should not come from only one maker and, therefore, must be open
code so as to be compatible with software from other makers; 2) future use of
software should not depend on the good will of the manufacturer and therefore
the source code should be available; 3) open code software would permit users
to detect attempts to
"spy" on them;
[*376] and 4) principles for compatibility, competition in software, respect for
privacy, and civil liberties should be established.
A few Brazilian locales have succeeded in requiring the government to use open
n230 In June 2001, the City Council of Amparo, a city in S<tild a>o Paulo state, passed a law requiring that the municipal government prefer
free, unrestricted open-source software.
n231 The municipality of Recife also has an open source preference pursuant to an
executive decree in April 2000.
n232 In December 2001, the Chamber of Councilmen in Porto Alegre approved a project
that sets the conditions for open source use in the municipal administration.
n233 Several other Brazilian cities and states have considered or are considering
open source preference proposals.
e. Italy and Spain
In Italy and Spain, resolutions favoring the use of open-source software have
also been passed. In Italy, the city government of Florence passed a resolution
warning that the use of proprietary software was leading to
"the computer science subjection of the Italian state to Microsoft."
n235 In May 2002, the Council of Pescara approved a motion, introduced by the
Italian Communist Party and the Left Democrats, asking for introduction and
"Open Source Software" in
[*377] public administration of the Province of Pescara.
n236 In Spain, the Canary Islands Regional Parliament approved a proposal to urge
the regional government, in partnership with local authorities and companies,
to promote use of OSS through training courses and increasing public awareness
about OSS availability.
The Venezuelan government announced
"all software developed for the government must be licensed under the GPL," with the general objective being
"open source whenever possible, proprietary software only when necessary."
n238 The government's open source mandate seems motivated by a desire to help local
"The government and the people of Venezuela were increasingly concerned that
over 75 percent of the funds for software licenses went to foreign nations, 20
percent to foreign support agencies, and only 5 percent to Venezuelan
n239 The government's specification of the use of the GPL seems politically
motivated, based in part on the
"great wealth of technical advisors"
n240 who are active Linux developers and users and who
"were clearly influential in reaching this new policy decision."
g. China, Singapore, and Peru
A software development group set up by the Chinese government has demonstrated
progress in developing its own Linux version to replace Windows and Unix on all
government servers and PCs.
"The group's goal is to develop an entire desktop environment with open source
technology for the government,"
n243 including office productivity software.
[*378] Elsewhere, proposals on open-source software use are in various stages. In
Singapore, a government agency responsible for planning strategies to aid the
economy has reportedly decided to promote Linux. The agency targets software
developers, distributors, and service providers and offers economic incentives
such as tax breaks and grants for Linux-related economic development. In Peru,
a bill requiring the use of
free software in government computers is currently in the legislature.
n244 Similar bills have been proposed elsewhere in Latin America (e.g., Argentina).
2. Rationales Offered
We reviewed the various studies and proposals and synthesized the rationales
that have been presented for using or promoting open source software. Some of
the rationales have involved claims that open source provides certain technical
or cost-saving advantages over proprietary software. Basing purchasing
decisions on such advantages does not amount to a government intervention -
obviously the government should get the best software just as it should get the
best tanks and the best paperclips. Other rationales seem to be based on a
desire to correct a perceived market failure although the debates are seldom
couched in those terms, instead mentioning issues such as independence,
innovation, competition, and helping domestic industries. Finally, some of the
rationales are based on ideological views. Our summary is based mainly on
Germany since the debate concerning open source seems to have progressed
farther there than in any other jurisdiction. However, the general arguments
discussed below have been made in some form by various people in many other
a. Security, Stability, and Privacy
Many of the government efforts to promote open source are based on the claim
that open-source software is more secure or stable than proprietary software.
For example, the German government claims that Linux is one of the most stable
and secure operating systems since it allows developers to examine the source
code, check for problems, and correct problems more quickly.
n246 A meeting on
"Open Source Software in Public Administration" presented the view that knowledge of source code is a fundamental prerequisite
for the protection of systems and networks (e.g., against viruses).
n247 In its resolution on
"Germany's Economy in the Information Society," the Bundestag stated that open-source software is characterized by stability
and high security.
n248 A related concern is that
"some versions of Windows contain backdoors designed to grant the U.S. National
Security Agency access to users' data"
n249 which would compromise users' privacy.
b. Cost Savings
Some government-sponsored studies have claimed that using open source saves
money. German experts said the use of open-source software in public
administration would save the federal government .130 million and .2.6 billion
n250 In July 2001, the State Secretary in the Federal Ministry of Economics and
Technology said that Linux was
"more stable, cheaper, more customisable and more secure" compared to proprietary software.
On various occasions, the German government has expressed its concerns about
the administration's dependency on single software
[*380] providers. The State Secretary in the Federal Ministry of Interior Affairs
stated in July 2001 that dependence on a single software provider makes systems
more vulnerable, and that the federal government would try to reduce its
dependence on single software providers by adopting open source.
n252 At the regional level, Mrs. Harms, a Green Party Member of the Lower Saxony
regional Parliament, stated that a Linux platform complemented with open-source
and commercial products should relieve the dependence on a single provider.
A number of the proposals to assist open source have claimed that open source
is more innovative than proprietary software. The European Commission's IDA
study stated that
"OSS in general and GPL in particular permits a greater rate of innovation, with
n254 For example, in the Spirit Project, partially funded by the European
Commission's Fifth Framework Programme and established to
"accelerate the uptake of open source solutions in European health care,"
n255 it was mentioned that
"the open source approach plays a key role in accelerating the evolution and
uptake of best practice solutions in health care. It also stimulates innovation
and evidence-based review."
n256 On a national level, in its government-commissioned study on patent protection
of software products, the Fraunhofer Institute and Max-Planck-Institute stated
"the further development of Open Source as a kind of public good, that on
principle is available for use by all economic units and thus in the sense of
the new growth theory promotes the general technical progress and therefore
innovation dynamics, is perceived to be in special danger."
n257 Professor Lessig, whose views we discuss both above and
[*381] below, has also based his support on the proposition that open-source software
has been innovative.
The German government has argued that open source plays an important role in
stimulating competition. Margaret Wolf, State Secretary in the Federal Ministry
of Economics and Technology, noted that open-source software played an
important role in bringing competition to the software market.
n259 Along the same line, the audit study presented to the Budget Committee of the
regional parliament of Schleswig Holstein stated that Linux and
Linux-compatible applications should bring more competition into the IT arena.
n260 The Commission's 2001 IDA study also noted the proposition that open source
would help competition. The study argued that governments could require the use
of open source without running afoul of European competition laws because doing
"technical or economic progress, allowing consumers a share of the resulting
f. Helping Domestic Industries and Other Nationalistic Motives
The German government's national interest has yet another argument in favor of
open source. As Professor Lutterbeck stated in his report commissioned by the
Federal Ministry of Economics and Technology,
"new and not yet discussed in Germany are the figures of the worldwide
occurrence of open-source developers. They show that German developers form the
second largest group. On the whole, European developers are predominant."
n262 He concluded that the open-source area not yet dominated by the United States
is of great economic importance
[*382] for Germany.
n263 In its resolution on
"Germany's Economy in the Information Society" on November 9, 2001, the German Bundestag also stated that open-source
software should be considered a special opportunity for the European software
industry and should not be missed.
Helping domestic programmers was also explicitly stated as
"one of the big reasons" for the GPL mandate in Venezuela.
Most recent open-source software seems to be developed under the GPL. This is
due to FSF's influence, whose motivation in developing and supporting the GPL
is purely ideological. Some of the justifications provided for government
policies in support of open source echo these sentiments.
For example, in his recent address to the Brazilian Congress, Richard Stallman
"I find in Brazil considerable awareness that
free software is a social and political issue as well as a practical and economic one. The
programmers and users that I have met here are very receptive to the ideas of
free software represents."
As one of the reasons for supporting open-source software, the European Working
Group on Libre Software (created at the initiative of the Information Society
Directorate General of the European Commission) stated that it
"provides a new forum for democratic action."
Politics was one of the reasons for the Venezuelan government's recent mandate
for governments to use GPL software. The government was urged by an advisory
group that included Linux developers and users.
n268 If the government had been interested solely in helping domestic programmers,
it could have mandated that the software in question either be in the public
domain or have any one of several licenses. For example, in addition to
allowing the GPL, the mandate might have accepted
[*383] software licensed under the LGPL, the BSD license, or other non-restrictive
licenses - not just the ideology-based GPL.
C. Economic Arguments for Helping Open Source
Economic arguments for helping open source are based on the premise that open
"better" in some ways and therefore the government should help promote it. In theory,
two sorts of arguments might be made. One is that open source is superior and
should be used more by prudent purchasers, and the government is no different
from business. The other is that open source could provide various economic
benefits if successful, so government should give it a boost.
In practice, these arguments tend to blur. Professor Lessig, for example,
What reason does the government have for supporting closed code, when open code
is as powerful and the externalities from using open code would benefit others?
If the PCs that the government owned ran something other than Windows, then the
market for these alternative platforms would be wildly expanded. And if the
market for alternatives were strong, then the benefits from building for these
alternatives would be strong as well.
His argument begins with the premise that open source is as good or better
than proprietary software and ends with the conclusion that the government
should promote open source. Here and in his other writings, Professor Lessig
seems to be doing more than advising the government on how to run its IT
n270 He seems to be suggesting that the government should use open-source software
in ways that one would never suggest for a profit-maximizing business.
Professor Lessig's passage, though, may be based on a market failure concept to
which we return below.
The economic arguments for promoting open source are often similar admixtures
of claims about the superiority of open-source software and assertions about
the munificent effects of government help.
[*384] We begin with the premises and then turn to the claims that government
assistance is needed.
1. Claims about the Superiority of Open-Source Software
As we discussed above, there is no basis for claiming that open-source
software has generally been more
"innovative" than proprietary software. Most of the proposals for assisting open-source
software have been aimed at Linux and related software for client computers,
which generally have been released under the GPL.
n271 Much of the software released under the GPL has been, intentionally, imitative
of proprietary software. Many of the GPL projects underway involve further
efforts to copy proprietary software. The open-source products with the
strongest claims to being innovative have been released under BSD-style
licenses. A general claim, however, that open source is more innovative that
proprietary software cannot be made.
b. Security and Privacy Concerns
Claims by its proponents that open-source software is inherently more secure
than proprietary software have at least a veneer of plausibility: the more
eyeballs that are looking for security problems, the higher the probability
that problems will be identified and solved. We take no position on whether
this argument is correct. We do note, however, that not everyone agrees with
this view. There may, in fact, be no particular reason to believe that more
eyeballs actually are looking for security problems with open source.
n272 Some commentators have asserted that widespread attacks on Windows computers
connected to the Internet are motivated as much or more by the ubiquity of
these computers as by their security problems.
[*385] Claims that open-source software is more protective of privacy than is
proprietary software also have some theoretical plausibility. In theory,
proprietary software has the potential to watch a user and transmit usage data
back to the software vendor for marketing or other purposes. In practice, open
source cannot easily do this, since a skilled programmer who noticed such
behavior could excise the code from an open-source program. Similarly,
encryption software could theoretically have a
"backdoor" that would let those in-the-know decrypt supposedly secure information; again,
a skilled programmer could excise such code from an open-source program. Such
claims are difficult to evaluate. It is certainly true that open source can
generally avoid potential privacy and security problems like these. There is
little evidence that proprietary programs actually engage in such activity.
n274 Much of the argument seems based on speculation (what could happen) rather
than fact (what does happen).
n275 Proprietary software producers, it should be noted, have strong financial
incentives not to intrude on the privacy or compromise the security of their
licensees. If such behavior became known, people would seek other software.
c. Cost Savings
We note that profit-oriented firms in the private sector tend to use
proprietary software extensively in some situations (particularly for client
computers), with open-source software being relatively more popular on servers
than on clients. This client-side preference for proprietary software strongly
suggests that, despite the client-side cost savings (at least acquisition
costs, if not training and support costs), open source generally has been
inadequate in overcoming the technical advantages of proprietary software.
Where formal studies have been conducted, the results have not always been
conclusive. For example, the audit study presented to the Budget Committee of
the regional parliament of Schleswig Holstein in Germany stated that adoption
of OSS where no license costs were paid might lead to substantial cost savings.
[*386] other costs such as training, setup, support and development should be taken
into account. The study concluded that there was no clear economic winner.
2. Arguments for Promoting Open Source
The less sophisticated argument for promoting open source is that it is
"good" so let us have more. The more sophisticated argument is that government
assistance for open source will increase competition for proprietary software
(particularly Windows) and thereby benefit society through externalities. We
consider each in turn.
a. Promoting Open Source because It Is
"Better" than Proprietary Software
Some of the arguments for government promotion of open-source use seem to be
based on nothing more than the observation that open-source software has
certain features that are claimed to be superior to proprietary software. For
example, in November 2001, Michel Sapin, the Minister of Public Services in
"Les deux exigences de la deuxieme etape de l'administration electronique sont
donc l'interoperabilite et la transparence. Ce sont justement les deux points
forts des logiciels libres." ("Next generation e-Government has two requirements: interoperability and
transparency. These are the two strengths of open source software.")
n277 Mrs. Zypries, a state secretary in Germany, stated during a meeting on
"Open Source Software in Public Administration" that the knowledge of code is a fundamental prerequisite for the protection of
systems and networks.
n278 To the extent that open-source software is better than proprietary software in
meeting government IT needs, one could hardly object that the government should
use open source. But the amount of interest in touting the advantages of
open-source software and the occasional attempt to legislate the use of open
source implies that more is going on here than a simple technical debate.
[*387] We make several observations. First, there is no basis for claiming that open
source is generally superior to proprietary software. We saw earlier that both
approaches have advantages and disadvantages. One would need to evaluate
open-source software and proprietary software on a case-by-case,
product-by-product basis. That open-source software has seen greater relative
successive on servers than on clients strongly suggests that users make exactly
those kinds of comparisons. Second, there is no basis for claiming that an
advantage of any particular open-source program over a proprietary counterpart
will persist. As we saw above, there is nothing intrinsic in open-source
software that ensures that it will be more secure than proprietary software.
Third, there seems to be a suggestion that because there is something
"good" about open source (better security, it is free, etc.) the government should do
something to promote this
"good." Such reasoning is faulty. The market will veer toward open-source software
solutions if they are superior, so there is no reason why the government needs
to push the market in that direction. As we have noted earlier, governments
have bad track records at picking technology winners and losers.
The potential for
"innovation" by open-source software is not, by itself, a sensible economic reason for
favoring open source. A private firm deciding what mix of software will best
meet its needs over a relevant time horizon would care about which of the
specific products and technologies are most cost-effective over that time
horizon; the firm would not care whether some production method tends over the
long run to be more
"innovative" than another.
b. Promoting Open Source to Increase Competition
As noted above, some people have argued that governments should use Linux to
provide competition to Microsoft. In some cases, this argument is based on
giving the government another source of competitive supply (much like
second-sourcing for any business). In other cases, the argument is based on the
government's helping to create a competitive alternative to Microsoft, thereby
benefiting society generally. We believe that this argument, although
ultimately fallacious, is one of the most promising. Let us develop the
argument a bit before we discuss the problems.
Many businesses ensure that they have at least two suppliers. That provides
several advantages. First, it provides a supply source if one vendor cannot
perform. For example, a business that requires a critical component may not
want to risk running out of that component so it will retain a second supplier
as back up. An explanation like this can hardly
[*388] apply to a software supplier, since capacity and manufacturing problems are
not relevant for software.
Second, it ensures supply competition; the availability of a second supplier
can help discipline the prices of the first. Indeed, it is theoretically
possible that a company would be willing to pay a higher price or accept a
lower-quality product just to get the benefits of second source. This argument
makes sense only when the company would not have access to the second supplier
if it did not second source, which for software could happen only if the second
supplier could not remain in business without the second-source contract. If
the second supplier would be available anyway, then the business can always
just take bids and select the best supplier. By the same reasoning, one might
argue that it makes sense for governments to use Linux operating systems even
when they are not the most cost-effective choices on more narrow economic
grounds. Moreover, one might argue that government procurement of open-source
software could help ensure the survival of long-run competitive alternatives to
proprietary software in general and Windows in particular.
There are several problems with this argument. The most fundamental problem is
that procurement policies seem unlikely to be useful in supporting the
development of open source, due to the non-market orientation of its
development. When the source code for a product is freely available, there can
be no economically significant entry barriers into the business of
"supplying" that product to potential users. In such a situation,
"buying" an open-source product (or support for the product) pays for the distribution
costs (and the support costs) but nothing more, due to competition for
distribution of the product. This problem arises regardless of the motivation
underlying the procurement preference.
Another problem is more specific to competition between Linux and Windows. One
must distinguish between the use of these products on servers and on clients.
In the case of servers, Microsoft is not the dominant supplier of operating
systems. Based on shipments (hardware plus software revenues), Microsoft's
share of servers was 23 percent in 2000.
n279 Microsoft's share has increased over the years as the price-performance
characteristics of its server operating system has improved. This has provided
price and innovation pressure on the other server software competitors, such as
Novell, IBM and Sun. Linux has also done
[*389] quite well in gaining server installations. Its share of server shipments
stood at 3 percent in 2000, up from 1 percent in the previous year.
n280 We do not see any basis other than merit for having the government choose
Linux operating systems for its servers.
Microsoft does, however, have a very large share of client operating systems.
On single-user computers, its share of new shipments was 93 percent in 2000.
n281 Some might argue that it makes sense to try to develop a competitive
alternative. There are several problems with having governments do that:
1. Short of most governments agreeing collectively to support Linux, no single
government - even the U.S. government - purchases enough client operating
systems to have much effect on Linux's success; moreover, as discussed above,
procurement policies seem particularly ill-suited for promoting the development
of open source.
2. The open-source software method appears unlikely to serve consumer needs on
the client side. Unlike server operating systems, which are often maintained by
technically adept individuals, client operating systems are generally used by
technically unsophisticated individuals. As we discussed earlier, the
open-source production method does not have any mechanism or incentives for
designing software for the masses.
3. There is no apparent reason why Linux should be the
"second source" alternative if there is to be one. The Macintosh OS or OS/2 could be better
potential choices. There are already applications written for them, and they
are produced by proprietary companies that have the incentives, and knowledge,
to produce consumer-oriented software.
4. There are benefits to standardizing client-side software. As mentioned
above, many types of software (including client operating systems and some
categories of client applications) exhibit
"network effects." Users gain when their knowledge of user interfaces, program capabilities, and
the like can be readily transferable. Deliberately avoiding
[*390] widely-used software reduces these consumer benefits. If a large government
customer shifts its use of operating systems from one to another, it will
increase the general public's network effects for its new operating system, but
it will necessarily reduce the network effects for remaining users of its
former operating system. If the new operating system started with a smaller
network than the old, then the total network effects are likely to decline with
such a switch (unless the new operating system actually is superior to the
former one. In this case, there is unlikely to be any need for government
policy, as the market is likely to switch on its own).
Let us now return to Professor Lessig's suggestion that the government use
n282 Filling in his thoughts, the argument seems as follows: if the government
promotes the Linux operating system, that would increase the share of computers
running the Linux operating system; more applications would be written to run
on the Linux operating system; there would be more competition for Windows; and
consumers therefore would be better off. This argument could be made for many
products with network effects that the government uses, from telecommunications
systems to credit cards. Professor Lessig provides neither theory nor fact
supporting government aid of this particular product - Linux (or any other
open-source software product) - and our discussion above shows why such
government efforts would be neither prudent nor successful.
D. Releasing Software R&D Under the GPL
Some governments, such as in the United States, have long provided support for
software R&D through universities and government research laboratories. In general,
government sponsorship of R&D efforts, for other industries as well as software, is justified as overcoming
market failures and providing beneficial externalities.
In this article, we do not address the issue of whether such R&D support for software is good public policy. We do, however, address the issue
of whether R&D support for GPL software is good public policy.
In the past, U.S.-sponsored software research either went into the public
domain, remained in the hands of the military, or was spun off for
[*391] commercial purposes.
n283 We make no claims about specific products but note that the Internet arose
from U.S.-sponsored research. Whatever policies were in place at the birth of
the Internet (which notably did not include sponsoring GPL software), they seem
to have succeeded technologically.
In recent years, however, substantial government R&D support has been directed at GPL software. For example, NASA developed the
original Beowulf clustering software for Linux, released under the GPL.
n284 More advanced clustering software was developed at Sandia National
Laboratories, also released under the GPL.
n285 The next version of the Reiser File System is sponsored primarily by the
Defense Advanced Research Projects Agency (DARPA) and will be licensed under
n286 And, in April 2002, Sandia National Laboratories released its
"DAKOTA Toolkit" under the GPL.
There seems to be no economic justification for this support of the GPL. In
other areas, universities and government research laboratories have been
encouraged over the past 20 years to spin off research into commercial
products, particularly through the licensing of patents that emerge from their
n288 If such policies are appropriate for other
[*392] fields, there is no reason to believe that they are inappropriate for
software. The justification for such policies is essentially that firms with
intellectual property rights will have profit incentives to develop products
and services that others will value. Support of GPL projects is incompatible
with commercial spin-off efforts, since the GPL is incompatible with
proprietary, commercial software.
If, for some reason, the standard commercialization approaches appropriate for
other fields of research are inappropriate for software R&D (and we know of no such reasons), then licenses less restrictive than the GPL,
such as the BSD license or even the public domain, would seem appropriate. They
let anyone use the software in any ways they choose; in contrast, the GPL
sharply restricts the ways in which the software can be used. As noted above,
the GPL is sometimes claimed to be more appropriate than other license types
for a software
"cooperative," because it might possibly encourage more
"sharing" behavior among the cooperative members. But that argument cannot apply to
government-sponsored R&D, which is getting funding from the government and is not part of a user
We argue here that it is bad public policy for the government to support
software R&D that is licensed under the GPL. In an extended endnote, Lessig appears to
disagree with this position; he presents what he claims are arguments advanced
by others in support of our position (although not the arguments we present
here), and he then rejects them.
n290 He characterizes these arguments by others as:
"Government funds should not promote a coding project that is not wholly free
for anyone to take and do with as they wish."
n291 He then rejects the putative argument he has presented:
"This is not an argument against open source, it is an argument against GPL. And
if it is a strong argument against GPL, then it is also an argument against the
government supporting proprietary projects as well."
We disagree. Software released under a BSD-style license (or into the public
domain) can indeed by used readily by others. The owners of proprietary
software have profit incentives to make sure that their technology gets used in
ways that consumers value. In both of these cases,
[*393] parties that highly value the results of that R&D can make use of it in their own products. That is not true of software
released under the GPL; only other GPL software can make use of it.
The oddity of government sponsorship of R&D for GPL projects can be seen by drawing an analogy with, for example,
sponsorship of biotech research. Suppose that the government required that all
biotech patents issued under sponsored research be put into a special patent
pool. Suppose further that the patents in this pool could be relied on by
anyone, for any purpose, with one condition: if products or processes were
developed (to any extent whatsoever) under these patents, then all other
patents on which these products or processes relied also had to be added to the
special patent pool. The obvious outcome of such an arrangement would be that
for-profit firms would avoid relying on patents in the special patent pool and
would donate few, if any, patents to the pool. The U.S. government does not
fund pharmaceutical research in ways that prevent the use of that research by
firms making proprietary products. But funding R&D for GPL software has exactly that effect in software - preventing its use by
firms making proprietary products.
In short, the economic justifications for government support of R&D seem no different for software than for other industries. The economic
reasoning that leads the government to favor commercialization of R&D results in other industries applies equally well to software. If for some
reason software is deemed to be different, then government policies should
favor releasing R&D software research into the public domain or under BSD-style licenses, to
permit their widespread use.
Part VII. Conclusions
We are aware of no general market failure that governments have identified in
the provision of commercial software. Yes, software has somewhat unusual
characteristics, but so do other industries based on intellectual property. And
the commercial software industry has grown enormously over the last few
decades, providing ever more powerful, easy-to-use software to more users.
Open-source software in general has had some successes, but GPL software to
date has seen relatively few hits, and those seem mostly imitative.
We are also aware of no compelling evidence that governments have special
expertise in analyzing the software industry to effect solutions that will
improve the situation. It is perhaps human nature for bureaucrats (and
economists) to believe that they can improve upon the operation of markets with
strange characteristics. In general, however, we believe that humility is in
order. The last 20 years have shown that
[*394] governments have no particular skill in choosing industries to support as part
"industrial policy" initiatives. We see no reason to believe that governments would be any better
at designing new and improved software industries.
It is difficult to know what to make of statements like the following:
"Likewise with the government's choice of operating systems. What reason does
the government have for supporting closed code, when open code is as powerful
and the externalities from using open code would benefit other users?"
"open code" in any given situation is actually
"as powerful" as
"closed code" is an everyday business judgment that should be made by businesses,
governments, and private users; it does not strike us as a policy issue that
should be decided by bureaucrats or legislators, or even by lawyers and
Moreover, we are highly skeptical of the
"externalities" claim. To the extent that these
"externalities" arise from use (e.g., network effects discussed above), we see no reason to
believe that they are more important for
"open code" than
"closed code." As discussed above, a switch to increase the
"externalities" that benefit other users of open source necessarily decreases the
"externalities" of the remaining users of proprietary software. The net effect is likely to be
a reduction in the total
"externality" benefits of software.
To the extent that the externalities arise from R&D efforts, then purchase preferences seem to be the wrong tool. Direct support
of software R&D (preferably not under the GPL) would be the appropriate policy if such
externalities are considered important. Purchase preferences for open source
seem particularly ill-suited for encouraging the development of open source
software. Given that the competitive price of open-source software is, in
effect, zero, we know of no empirical (or theoretical) evidence that government
"open code" operating systems will increase basic software R&D.
n1. We use the term
"open-source" to refer to software that is made readily available in the form of source
code. See infra Part II.
n2. European Parliament resolution on the existence of a global system for the
interception of private and commercial communications (ECHELON interception
system) (2001/2098(INI)) (Sept. 5, 2001) [hereinafter European Parliament
visited May 17, 2003).
n3. Deutscher Bundestag 14 Wahlperiode [German Bundestag 14th Election Period]
(Jun. 20, 2001), http://dip.bundestag.de/btd/14/063/1406374.pdf (last visited
May 17, 2003). This legislation differs from the Bundestag's decision in March
2002 to use open source programs such as Linux for some of its own IT needs.
See Part VI below.
n4. Law on the Establishment of the Agency for Information Technology and
Communication in the Administration, Law No. 2001-737 of Aug. 22, 2001, J.O.,
Aug. 23, 2001, p. 13509 n.194, available at
http://www.legifrance.gouv.fr/citoyen/jorf<uscore>nor.ow?numjo=PRMX0105055D (last visited May 17, 2003).
n5. See, e.g., Thomas Sterling, Beowulf Linux Clusters, at
http://beowulf.gsfc.nasa.gov/tron1.html (last visited May 17, 2003).
n6. See, e.g., Press Release,
Free Software Foundation, Richard Stallman Inaugurates
Free Software Foundation-India, First Affiliate in Asia of the
Free Software Foundation (Jul. 20, 2001), at
http://www.gnu.org/press/2001-07-20-FSF-India.html; Press Release,
Free Software Foundation, Richard M. Stallman Addresses Brazilian Congress on
Free Software and the Ethics of
Copyright and Patents (Mar. 20, 2001) [hereinafter Stallman Addresses Brazilian
Congress], at http://www.gnu.org/press/2001-03-20-Brazil.txt; Cara Garretson,
Open Source Subject to Fiery Debate, InfoWorld, Apr. 12, 2002,
n7. Lawrence Lessig, The Future of Ideas 247 (2001). See also Eben Moglen,
Free Software and the Death of
Copyright, 4 First Monday 8, Aug. 1999, at http://firstmonday.dk/issues/issue4<uscore>8/moglen/index.html; Shawn W. Potter, Opening Up to Open Source,
6 Rich. J.L. & Tech. 24 (Spring 2000), at http://www.law.richmond.edu/jolt/v6i5/article3.html; Report to the
President of the United States: Developing Open Source Software to Advance High
End Computing, President's Information Technical Advisory Committee, October
2000, at http://www.ccic.gov/pubs/pitac/pres-oss-11sep00.pdf (last visited May
n8. Other examples of market interventions with recent seemingly global appeal
include efforts to promote
"clean" technologies and efforts to reduce pharmaceutical prices (sometimes by voiding
patent rights). Resolutions in the Netherlands and the United Kingdom provide
subsidies to users of renewable energy sources, and the French and Russian
governments have approved several decrees to regulate drug supplies to reduce
prices. Paul Brown, Hewitt's
£ 20m will end solar power eclipse, The Guardian, Mar. 26, 2002, available at
http://www.guardian.co.uk/business/story/0,3604,674067,00.html; Energy Market
Trends in The Netherlands 2000,
http://www.ecn.nl/library/reports/2000/p00003.html (last visited May 17, 2003);
Industry suffers as European governments target pharmaceutical spending, at
http://www.inpharm.com/External/InpH/1,,1-0-0-0-inp<uscore>intelligence<uscore>art-0-5523,00.html (Oct. 1, 2001); Ludmila Maksimova, Russian Government Takes
Measures to Regulate Pharmaceutical Market, at
http://www.bisnis.doc.gov/bisnis/isa/9902phar.htm (Feb. 1999).
n9. See, e.g., Joseph E. Stiglitz, Principles of Microeconomics 506 (2d ed. 1997).
n10. See infra notes 207 and 208.
n11. See infra notes 207 and 208.
n12. It does not deal with some of the ideological arguments for supporting open
source, such as
Free Software Foundation's belief that proprietary software owners' negative attitudes about
"pollutes our society's civic spirit." Richard Stallman, Why Software Should Not Have Owners, at
http://www.gnu.org/philosophy/why-free.html (last updated Feb. 8, 2003).
n13. See Mp3licensing.com - About Us - Fraunhofer Gesellschaft, at http://www.
mp3licensing. com/about/fhg.html (last visited May 17, 2003).
n14. Some languages have interpreters rather than compilers, but the difference is
irrelevant for this article.
n15. The binary code is written in hexadecimal, which provides a compact way of
writing sequences of 0s and 1s.
n16. The source would be difficult, but not impossible to determine. Several
attempts are underway to clone existing software by reverse engineering. For
example, the WINE project is attempting to clone enough parts of Windows so
Windows applications can be run on Unix-like operating systems without having
to be rewritten. See WINE Development HQ - About, at
http://www.winehq.com/about.shtml (last visited May 17, 2003).
n17. Parties who hold
copyrights on open-source software can bring legal action against infringers to enforce
the terms of their licenses, as is also true for proprietary software. The
Free Software Foundation reports that it has settled many such cases without going to trial.
SeeEben Moglen, Enforcing the GNU GPL, at
http://www.gnu.org/philosophy/enforcing-gpl.html (Sept. 10, 2001). MySQL AB
brought claims against NuSphere related to violations of its license terms.
MySQL, FAQ on MySQL v. NuSphere Dispute, at
http://www.mysql.com/news/article-75.html (Jul. 13, 2001). These claims were
later settled. MySQL Press Release, MySQL AB and Nusphere Corporation Announce
Settlement (Nov. 7, 2002), at http://www.mysql.com/press/release<uscore>2002<uscore>14.html.
n18. Definitions of
"open-source" software are more complicated than are suggested by this simple dichotomy,
which is sufficiently precise for current purposes.
n19. We avoid using the word
"free" in this context because the term
"free software" denotes a specific type of
n20. We say
"direct" because software producers sometimes realize revenues indirectly from selling
complementary products or services.
n21. This is somewhat analogous to what many academics do with their writings.
Academics try to widely distribute their writings, often incurring production
and distribution costs, to gain recognition for themselves and their ideas.
Recognition is the currency of the realm and worth more than what academics
could ever get from selling their writings. Obviously, if people were willing
to pay (much) for academic writings, this pattern would change. And, indeed,
scientific writings that contain valuable intellectual property are not
distributed widely without proper intellectual property protection.
n22. The term
"shareware" is typically applied to software distributed freely in binary form. However,
copyright holder requests that users pay for the product, possibly after an initial
trial use period. In the 1980s, famous shareware programs included word
processors (PC-WRITE), databases (PC-FILE), and communications programs
(ProComm). Both freeware and shareware still exist today.
"In software, there is no single clear-cut decision that opened the floodgates
for patenting. Instead, we note that in [our] sample, the pace of patenting of
[software] firms is trivial prior to 1986." Samuel Kortum
& Josh Lerner, Stronger Protection or Technological Revolution: What Is Behind
the Recent Surge in Patenting?, 48 Carnegie-Rochester Conference Series on
Public Policy 247, 296 (Bennett T. McCallum
& Charles I. Plosser eds., Jun. 1998).
n24. Number of patents awarded to U.S. inventors with International Patent
Classification assignment to subclass G06F ("Electric Digital Data Processing"). Delphion Research, at http://www.delphion.com/ (last visited May 13, 2003).
n25. Mathematica: The Way the World Calculates, at
http://store.wolfram.com/view/app/mathematica/ (last visited May 17, 2003).
n26. Quickbooks Basic 2003 Overview, at
http://www.quickbooks.com/products/basic/pricing.html (last visited May 17,
2003); Quickbooks Premier 2003 Overview, at
http://quickbooks.intuit.com/qbcom/jhtml/skins/prod<uscore>ovw.jhtml?ssaPath=qb<uscore>2003<uscore>win<uscore>premier<uscore>1user&productGroup=premier&priorityCode=0273400000 (last visited May 17, 2003).
n27. For example, Symantec charges $ 50 for the standard version of its antivirus
program and $ 70 for SystemWorks, a utility suite. Norton Antivirus 2003, at
http://www.symantecstore.com/dr/sat/ec<uscore>MAIN.Entry17c?CID=48782&SID=27674&SP=10007&PN=5&PID=367322&DSP=&CUR=840&PGRP=0&CACHE<uscore>ID=48782 (last visited May 17, 2003); Norton SystemWorks 2003, at
http://www.symantecstore.com/dr/sat/ec<uscore>MAIN.Entry17c?CID=48782&SID=27674&SP=10007&PN=5&PID=426992&DSP=&CUR=840&PGRP=0&CACHE<uscore>ID=48782 (last visited May 17, 2003).
n28. EBGames.com, Final Fantasy X,
http://www.ebgames.com/ebx/categories/products/product.asp?pf<uscore>id=182336 (last visited May 17, 2003).
n29. EBGames.com, Tom Clancy's Splinter Cell,
http://www.ebgames.com/ebx/categories/products/product.asp?pf<uscore>id=232539 (last visited May 17, 2003).
n30. This license was created by the University of California at Berkeley primarily
to distribute Unix-related software. Peter H. Salus, A Quarter Century of UNIX
n31. Id. at 216.
n32. UNIX Based: The Open Desktop, An Open Source Core Lets You Check Out What's
Under the Hood, at http://www.apple.com/macosx/technologies/darwin.html (last
visited May 17, 2003).
n33. E.g., Sendmail, Inc. sells a modified version of its open-source
"Sendmail" e-mail server software. Sendmail, Company Overview, at
http://store.sendmail.com/cgi-bin/smistore/company.jsp?BV<uscore>UseBVCookie=Yes&filepath=overview/index.shtml&heading=Company%20Overview (last visited May 22, 2003).
n34. The GPL is legal language written by the
Free Software Foundation and is freely available at http://www.fsf.org for use by others.
n35. Hard information on the importance of various licenses is unavailable. As
discussed below, SourceForge, a major hosting site for open-source projects,
suggests that roughly half of the projects hosted at the site rely on the GPL
at least in part (license information is not provided for all projects, and
some projects have multiple licenses). Of those projects where license
information is available, roughly 70 percent rely on the GPL, at least in part.
See http://sourceforge.net (last visited May 6, 2003).
n36. See infra Part IV.A.1.
n37. Any recipient of a copy of modified code distributed under the GPL can
redistribute the code. Since it is impossible to restrict the number of copies
that this recipient and subsequent recipients make, there is no effective
restriction on supply. The competitive price of software distributed under the
GPL, therefore, tends to zero.
n38. The key persons and institutions favoring the GPL also favor the term
"GNU/Linux" over simply Linux to emphasize that the operating system commonly called
"Linux" relies on much more than just the Linux
"kernel." Richard Stallman, What's in a name?, at
http://www.fsf.org/gnu/why-gnu-linux.html (last visited May 18, 2003). In
keeping with common usage, however, we use the term
"Linux" for both the operating system and the kernel.
n39. Another type is software that is developed by people or businesses for their
own use. Most large companies, and many smaller ones, have written software
applications that accomplish particular functions (e.g., accounting). This
software is proprietary, but the company typically chooses not to license it to
others. Firm-specific software would typically provide little or no benefit to
other firms (except perhaps to competitors as a form of market intelligence).
n40. In this section,
"commercial software" is synonymous with
"proprietary software licensed to others." Some commercial firms do attempt to develop open-source software to license to
others; they are probably a negligible component of the total commercial
n41. Richard V. Heinman et al., IDC Report #25569, Worldwide Software Market
Forecast Summary, 2001-2005, Table 1 (Sept. 2001).
n42. Id. at Table 4.
n43. Sherlene K. S. Lum
& Brian C. Moyer, Gross Domestic Product by Industry for 1998-2000, Survey of
Current Business 30, Table 8, available at
visited May 18, 2003).
n44. For more information regarding the software industry, see Kenneth G. Elzinga
& David E. Mills, PC Software,
44 Antitrust Bull. 739 (1999).
n45. Paul Mason et al., IDC Report #8324, 1993 Worldwide Software Review and
Forecast, Table 2 (Dec. 1993); Heinman, supra note 41, at Tables 1, 16.
n46. U.S. Census Bureau, Number of Firms, Number of Establishments, Employment, and
Annual Payroll by Employment Size of the Enterprise for the United States, All
Industries - 1992 [hereinafter U.S. Census Bureau - 1992],
http://www.census.gov/csd/susb/usalli92.xls (last visited May 18, 2003); U.S.
Census Bureau, Number of Firms, Number of Establishments, Employment, and
Annual Payroll by Employment Size of the Enterprise for the United States, All
Industries - 1999 [hereinafter U.S. Census Bureau - 1999],
http://www.census.gov/csd/susb/usalli99.xls (last visited May 18, 2003).
Figures based on the Bureau's classification of
"Prepackaged Software" (NAICS 5112 for data collected in 1997 and later; SIC 7372, prior to 1997).
n47. Heinman, supra note 41, at 15.
n48. U.S. Census Bureau - 1999, supra note 46.
n49. Heinman, supra note 41, at 27-29.
n50. U.S. Census Bureau, Concentration Ratios in Manufacturing: 1997 Economic
Census at pp. 7, 16 (Jun. 2001) [hereinafter Concentration Ratios - 1997],
http://www.census.gov/prod/ec97/m31s-cr.pdf (last visited May 18, 2003).
Figures based upon value of shipments for industries categorized at the 4-digit
NAICS industry level.
n51. The HHI is equal to the sum of the squared values of each firm's share of the
market. For example, a market that consists of four firms with market shares of
35 percent, 30 percent, 20 percent and 15 percent would have an HHI equal to
2,750 (35 x 35 + 30 x 30 + 20 x 20 + 15 x 15). See
n52. The Antitrust Division of the U.S. Department of Justice and the Federal Trade
Commission consider industries with HHIs of less than 1,000 to be competitive
and those with HHIs of 1,800 or greater to be cause for significant competitive
concern. U.S. Department of Justice and Federal Trade Commission, 1992
Horizontal Merger Guidelines, Section 1.5 Concentration and Market Shares
(revised Apr. 8, 1997), available at
http://www.usdoj.gov/atr/public/guidelines/horiz<uscore>book/15.html (last visited May 18, 2003).
n53. Heinman, supra note 41, at Table 2, pp. 27-29 (listing figures based on
worldwide packaged software revenue). This report provides firm-level data for
the 100 largest software vendors which covers 61 percent of packaged software.
Firms ranked 80th to 100th largest in size each hold one percent of the market.
For purposes of this calculation, we assume the remaining 39 percent of the
market is composed of similar firms whose market shares also equal one percent
(an assumption that produces the highest possible HHI estimate).
n54. Concentration Ratios - 1997, supra note 50. Figures based on the top 50 firms
in 1997 and the Bureau's classification of
"Motor Vehicles" (NAICS 3361) and
"Breakfast Cereals" (NAICS 31123). In fact, the same document shows that 55 percent of industries,
calculated at the four-digit level, had a higher HHI than the software
n55. Mason, supra note 45, at Table 2, pp. 10-16; Heinman, supra note 41, at Table
2, pp. 27-29.
n56. IMS Health, M&A Drives Decade of Change, at http://www.ims-global.com/insight/news<uscore>story/0104/news<uscore>story<uscore>010425.htm (Apr. 25, 2001).
n57. The fat manuals of the past have largely been replaced by electronic
documentation, available either on CD or the Web.
n58. For example, PC manufacturer eMachines charges $ 20 per out-of-warranty
support incident; presumably the cost to eMachines of a support call is in the
same ballpark. EMachines, Customer Support, at
http://www.emachines.com/support/tech<uscore>support.html (last visited May 13, 2003).
n59. It is not unusual for a software developer to have multiple versions of a
product under simultaneous development, with feedback across the versions.
n60. We previously mentioned the game Final Fantasy X, supra Part II, the 9th
sequel of the first Final Fantasy game.
n61. Marketing and selling costs may be substantial, but they do not generally
increase automatically with a spurt in sales (except for sales commissions and
n62. See, e.g., Elzinga, supra note 44, at 756.
n63. This may not be true for every product, especially if a firm produces
complementary products. For example, AOL gives away its access software and
attempts to make money by selling its Internet service, by selling advertising,
and by making financial arrangements with vendors that sell their own goods and
services through AOL. See AOL Time Warner, 2002 Annual Report 25-27,
http://www.aoltimewarner.com/investors/annual<uscore>reports/pdf/2002ar.pdf (May 18, 2003).
n64. Josh Lerner, The Returns to Investments in Innovative Activities: An Overview
and an Analysis of the Software Industry, in Microsoft, Antitrust and the New
Economy: Selected Essays 463 (David S. Evans ed., 2002).
n65. SeeDavid S. Evans, Albert Nichols,
& Bernard Reddy, The Rise and Fall of Leaders in Personal Computer Software, in
Microsoft, Antitrust and the New Economy: Selected Essays 265, 267 (David S.
Evans ed., 2002); Stan J. Liebowitz
& Stephen E. Margolis, Winners, Losers
& Microsoft: Competition and Antitrust in High Technology (rev. ed. 2001).
n66. SeeDavid S. Evans
& Richard Schmalensee, Some Economic Aspects of Antitrust Analysis in
Dynamically Competitive Industries, in Innovation Policy and the Economy 2
(Adam B. Jaffe et al. eds., 2002).
n67. Robert Parker
& Bruce Grimm, Recognition of Business and Government Expenditures for Software
as Investment: Methodology and Quantitative Impacts, 1959-98, Bureau of
Economic Analysis and the U.S. Department of Commerce,
http://www.bea.doc.gov/bea/papers/software.pdf (last visited May 18, 2003). The
BEA constructed this price index for
"prepackaged" software by splicing together annual percentage changes in a price index for
computer hardware, a
"hedonic" price index for spreadsheets and word processors, two different
"matched model" price indices for different mixes of prepackaged software, and a producer
price index for applications software. Id. at Table 6. The BEA also publishes
price series for
"custom" software and for
"own-account" software. These two series are either flat or rise steadily, unlike the
dramatic decline in the series for prepackaged software. This appears to be an
artifact of the methodologies used by the BEA in constructing these other price
indices. For example, the BEA assumes that there has been no quality
improvement (and no productivity improvement) in the production of
"own-account" software - the price index for that software is assumed to depend on
compensation and office costs for programmers. Id. at Table 8, pp. 16-17. And
annual changes in the price index for custom software are simply a weighted
average of the annual changes in the price indices for prepackaged and
own-account software, with changes in the own-account software price index
receiving a 75 percent weight. Id. at 17.
n68. IDC Report #4046, 1989 Software Review and Forecast, 6-7, 18 (Apr. 1989);
Heinman, supra note 41, at Table 1, pp. 1-2.
n69. Bureau of Labor Statistics Division, Consumer Price Index - All Urban
Consumers: Computer Software and Accessories,
http://data.bls.gov/labjava/outside.jsp?survey=cu (last visited May 6, 2003).
To obtain CPI data, select the appropriate options - in this case,
"U.S. City Average" and
"Computer software and accessories."
n70. Bureau of Labor Statistics Division, Consumer Price Index - All Urban
Consumers: All Items (1997-2001),
1043186181547150272 (last visited Jan. 21, 2003). In this case, select
"All items" instead of
"Computer software and accessories."
n71. To buy the equivalent of one dollar's worth of goods in December 1997 ("all items") in December 2001 would cost $ 1 + (9.5% X $ 1) = $ 1.095. However, to buy one
December 1997 dollar's worth of software in 2001 would cost $ 1 + (-20.5% X $
1) = $ 0.795. $ 0.795 / $ 1.095 = $ 0.726, so the real price of software -
i.e., the price of software relative to
"all items" - fell by approximately ($ 1-$ 0.726) / $ 1 = 27.4 percent.
n72. The Transaction Processing Performance Council (TPC) is a non-profit group
that defines database benchmarks; its members include Compaq, HP, IBM, Intel,
Microsoft, Oracle, SGI, and Sun. It administers a widely used benchmark, TPC-C,
whose results are publicly available. The benchmark measures both performance
and price/performance. At Transaction Processing Performance Council, Complete
TPC-C Results List - Sorted by HardwareVendor, Version 3 Results,
http://www.tpc.org/tpcc/results/tpcc<uscore>results.asp?print=true& OrderBy=&version=3 (last visited May 13, 2003).
n73. See id.
n74. Software firms are those that report their primary SIC code to be 7372
(software publishers). Standard
& Poor's Compustat(R), available at http://www.compustat.com/www (last visited
May 13, 2003).
n75. Software firms are those that report their primary SIC code to be 7372
(software publishers). Id.
n76. Some commentators have argued that it should not be possible to obtain patents
on software. Lessig, supra note 7, at 205-17. Lessig himself argues against
patenting software. He also cites others who have expressed skepticism about or
outright scorn for software patents, including Richard Stallman and
representatives from Adobe, Microsoft, and Oracle. Even Bill Gates has
expressed skepticism about software patents, saying in 1991,
"If people had understood how patents would be granted when most of today's
ideas were invented and had taken out patents, the industry would be at a
complete standstill today." Id. at 206.
n77. SeeDelphion Research, supra note 24.
n78. See Paul Freiberger
& Michael Swaine, Fire in the Valley (2d ed. 2000); Steven Levy, Hackers (1984);
& Paul Andrews, Gates (1993) (discussing the state of computer hardware and
software in the years just before the emergence of the personal computer). See
also The Software History Center, at http://www.softwarehistory.org (last
visited May 18, 2003).
n79. In the PC era, MultiMate had a similar origin; its original developer first
wrote a look-alike of the Wang word processor for an insurance company and then
marketed the software generally. SeeKen Polsson, Chronology of Events in the
History of Microcomputers, at
http://web.archive.org/web/19990427035916/http://www.islandnet.com/<diff>kpolsson/comphist/comp1981.htm (last updated Feb. 3, 1999).
n80. One veteran of that era has described starting a firm in 1971 to sell a
payroll system and making 20-30 sales per year. Luanne Johnson, From
Not-Invented-Here to Off-The-Shelf (1997),
http://www.softwarehistory.org/history/Johnson2.html (last visited May 13,
n81. See SAS corporate web site, Company/, at http://sas.com/corporate/index.html
(last visited May 13, 2003); SPSS corporate web site, SPSS Inc. Corporate
History, at http://spss.com/corpinfo/history.htm (last visited May 13, 2003).
n82. Richard Stallman, Address at New York University,
Free Software: Freedom and Cooperation (May 29, 2001), available at
n83. As a legal matter, software is generally
"licensed" for use rather than
"sold," with the terms of the license determining how the buyer can use the software.
Much the same is true of, for example, music CDs; someone who purchases a music
CD generally does not obtain rights to copy the CD for sale, broadcast the
music, and so forth.
n84. Polsson, supra note 79.
n85. Freiberger, supra note 78, at 53-54 (explaining that the first version of
MS-BASIC was for the MITS Altair). See also Microsoft Museum, Microsoft
Timeline, at http://www.microsoft.com/museum/musTimeline.mspx (last visited May
n86. Freiberger, supra note 78, at 187, 194.
n87. Id. at 289-291.
n88. Polsson, supra note 79.
n89. Freiberger, supra note 78, at 195.
n90. GNU stands for
"GNU's Not Unix."
Free Software Foundation, The
Free Software Definition, at http://www.fsf.org/philosophy/free-sw.html (last visited May
n92. Richard Stallman, The GNU Project, at
http://www.fsf.org/gnu/thegnuproject.html (last visited May 13, 2003).
n95. In this context, a
"library" is a piece of software that is intended to provide services to some other
software; it can be considered a building block for a program.
n96. Richard Stallman, Why You Shouldn't Use the Library GPL for Your Next Library,
at http://www.fsf.org/philosophy/why-not-lgpl.html (last visited May 13, 2003).
n97. Richard Stallman, The GNU GPL and the American Way, at
http://www.gnu.org/philosophy/gpl-american-way.html (last visited May 13,
n98. SeeFree Software Foundation, What Is Copyleft?, at
http://www.fsf.org/copyleft/copyleft.html (last visited May 13, 2003).
n99. The GPL can affect patent and
copyright rights. If a firm (or programmer) has patent rights to modifications it makes
to a GPL program, then those rights (at least as embodied in the code in
question) must be licensed without charge to others.
Free Software Foundation, GNU General Public License, at
http://www.fsf.org/copyleft/gpl.html (last visited May 13, 2003).
n100. Explicit permission to develop, however, may be obtained from the
copyright holder. The program's
copyright holder might choose to release the program generally under the GPL. At the
same time, the owner could also license the program to another party on terms
other than the GPL, such as normal commercial terms. Dual-licensing does occur,
but the FSF warns the public that it rarely permits dual licensing of software
copyright it owns. See
Free Software Foundation, Frequently Asked Questions about the GNU GPL, at
http://www.fsf.org/copyleft/gpl-faq.html (last visited May 13, 2003). See also
id. at Using a certain GNU program under the GPL does not fit our project to
make proprietary software. Will you make an exception for us? It would mean
more users of that program. Dual licensing becomes difficult, if not
impossible, to arrange if a GPL program has gone through many generations and
"Program" refers to the program being licensed under the GPL. See GNU General Public
License, supra note 99.
n102. This is true even if the GPL code is in a separate module that is
"linked" (a technical computer term) to, rather than included directly in, another
Free Software Foundation, Frequently Asked Questions, supra note 100. See also id. at What
is the difference between
"mere aggregation' and
"combining two modules into one program'? and If a program released under the
GPL uses plug-ins, what are the requirements for the licenses of a plug-in?.
n104. Ira V. Heffan, Copyleft: Licensing Collaborative Works in the Digital Age,
49 Stan. L. Rev. 1487 (1997); David McGowan, Legal Implications of Open-Source Software, at
http://papers.ssrn.com/paper.taf?abstract<uscore>id=243237 (last visited May 13, 2003).
n105. Formal commercial internal testing might include using hundreds, perhaps
thousands of hardware/software configurations in a controlled manner.
n106. See, e.g., Josh Lerner
& Jean Tirole, Some Simple Economics of Open Source Software, 50 J. Indus. Econ.
197, 197-234 (2000); Justin Pappas Johnson, Some Economics of Open Source
Software (Dec. 11, 2000) (unpublished paper presented at 2001 IDEA Toulouse
conference), available at
http://www.idei.asso.fr/Commun/Conferences/Internet/Janvier2001/Papiers/Johnson.pdf (last visited May 18, 2003); Eric Raymond, The Magic Cauldron, in The
Cathedral and the Bazaar (2001), available at http://catb.org/<diff>esr/writings/cathedral-bazaar/magic-cauldron/ (last visited May 18, 2003).
"Every good work of software starts by scratching a developer's personal itch." Eric Raymond, The Cathedral and the Bazaar, in The Cathedral and the Bazaar 23
(2001), available at http://catb.org/<diff>esr/writings/cathedral-bazaar/cathedral-bazaar/ (last visited May 18, 2003).
n108. Of course, not all possible motivations apply in all circumstances. For
example, considering the amount of effort that Linus Torvalds and others have
devoted to developing Linux, it would have been much more efficient for them to
have purchased commercial copies of Unix.
n109. To gain an understanding of how some members of the open source community feel
towards Microsoft, visit http://slashdot.org/, which regularly has
anti-Microsoft posts, or read the
"TalkBack" comments on articles about Microsoft posted at http://www.zdnet.com/.
n110. Eric Raymond is sometimes considered the resident anthropologist of the
open-source movement. See An Interview with Eric Raymond, at
http://opensource.oreilly.com/news/raymond<uscore>0101.html (Jan. 24, 2001). He has written extensively on subjects related to
open source, such as the advantages he perceives from open-source development
and the motivations that programmers have to write open-source software. For
links to Raymond's writings, see http://catb.org/<diff>esr/writings/(last modified Nov. 23, 2002). For Raymond's commentary on some
internal Microsoft documents about open source (the
"Halloween Documents"), see http://www.opensource.org/halloween/ (last visited Feb. 5, 2003).
n111. Eric Raymond, Homesteading the Noosphere, in The Cathedral and the Bazaar 79
(2001), available at http://catb.org/<diff>esr/writings/cathedral-bazaar/homesteading/ (last visited May 18, 2003).
n112. Lerner, supra note 106.
n113. Raymond, supra note 111.
n114. For example,
"With a column called The Open Source, not a week goes by without someone asking
me how anyone makes money when they give away the source code for their
programs... . Using open source to make money is a no-brainer." Nicholas Petreley, Open-Source Economics, InfoWorld, Aug. 24, 2001, at
n115. Bruce Perens, The Open Source Definition: Version 1.9, at
http://www.opensource.org/docs/definition.html (last visited May 18, 2003).
n116. Bruce Perens, Open Letter to Michael Robertson, at
http://www.lwn.net/daily/perens-robertson.php3 (Apr. 13, 2002).
n117. Eric Raymond, The Magic Cauldron: Indirect Sale-Value Models, in The Cathedral
and the Bazaar 136 (2001), available at http://www.catb.org/<diff>esr/writings/magic-cauldron/magic-cauldron.html (last visited May 6, 2003).
n119. Some firms have supported the development of non-GPL open-source software,
typically attempting to license an enhanced version of the software under
proprietary terms - for example, Sendmail, Inc. SeeSendmail, Company Overview,
http://store.sendmail.com/cgi-bin/smistore/company.jsp?BV<uscore>UseBVCookie=Yes&filepath=overview/index.shtml&heading=Company%20Overview (last visited May 6, 2003).
n120. The WINE project is an attempt to clone the Windows APIs so that applications
designed for Windows will run on Unix-like operating systems. The WINE project
was originally licensed with a BSD-style license, but it recently switched to
the LGPL (the Lesser General Public License), another license that is promoted
by the FSF, but not as enthusiastically because it is not as restrictive as the
GPL. Jeff Tranter, Frequently Asked Questions About Wine and Corel, at
http://linux.corel.com/support/wine<uscore>faq.htm (on file with author); Alexandre Julliard, Conclusions, at
http://www.winehq.com/hypermail/wine-license/2002/03/0029.html (Mar. 4, 2002);
Stallman, supra note 96.
n121. The latest version of its office suite for Linux is WordPerfect Office 2000;
the latest version for Windows is WordPerfect Office 2002. Corel Corp.,
Products, at http:// linux.corel.com/products (on file with author); Corel
Corp., WordPerfect Office 2002 Standard, at
http://www3.corel.com/cgi-bin/gx.cgi/AppLogic+FTContentServer?GXHC<uscore>GX<uscore>jst=5a964475662d6165&GXHC<uscore>gx<uscore>session<uscore>id<uscore>FutureTenseContentServer=355c17803d3e054a&pagename=Corel/Product/Highlight&id=CC1MSNDMYJC&highlight=requirements (on file with author); Press Release, Xandros Announces Strategic
Licensing Agreement with Corel Corporation, (Aug. 29, 2001), available at
http://www.xandros.net/release1.html (last visited May 18, 2003).
n122. Ximian, Inc., Ximian Evolution 1.2, at
http://www.ximian.com/products/evolution/ (last visited May 18, 2003).
n123. Ximian, Inc., Ximian Connector for Microsoft Exchange, at
http://www.ximian.com/products/connector/faq.html (last visited May 18, 2003).
n124. TheKompany.com, Kivio mp, at http://www.thekompany.com/products/kivio/ (last
visited May 18, 2003).
n126. Shawn Gordon, Running a Corporation in an Open-Source World, at
http://www.linuxandmain.com/essay/sgordon.html (Mar. 18, 2002).
n127. Earlier versions of MySQL were released under an even more restrictive license
than the GPL. MySQL AB, MySQL Free Public License Version 4, Mar. 5, 1995, at
http://www.mysql.com/support/arrangements/mypl.html (last visited May 13,
n128. Press Release, MySQL AB, Record Sales, New Financing Fuel Growth at MySQL
(Apr. 22, 2002), at http://www.mysql.com/news/article-96.html. A similar dual
licensing strategy is followed on a lesser scale by the author of an advanced
file system for Linux.
"This project is GPL'd, but I sell exceptions to the GPL to commercial OS
vendors and file server vendors. It is not usable to them without such
exceptions..." Hans Reiser, ReiserFS v. 3 Whitepaper, at
http://forum.divdata.net/Centera/Documents/Centera/ReiserFS.pdf (last visited
May 18, 2003).
n129. For example, IBM released source code to its Andrew File System under the IBM
Public License and released source code to its Journaled File System for Linux
under the GPL. IBM, Open AFS Overview, at
http://www-124.ibm.com/developerworks/oss/afs/info.html (last visited May 18,
2003); IBM, Journaled File System Technology for Linux, at
http://www-124.ibm.com/developerworks/oss/jfs/index.html (last visited May 18,
n130. James Evans, IBM to invest almost $ 1 billion in Linux development, InfoWorld,
Dec. 12, 2000, available at
n131. IBM's server types include: mainframes running zOS, midrange servers running
OS/400, RISC processor-based Unix servers running AIX, and Intel
processor-based servers running Windows. SeeIBM, IBM E-server, at
http://www-132.ibm.com/content/home/store<uscore>IBMPublicUSA/en<uscore>US/eServer/eServer.html (last visited May 6, 2003).
n132. Its more popular server-based products include DB2 (a database) and Domino
(the server component of its Notes communications/groupware product); both
products are available for Linux. See IBM, DB2 for Linux, at
http://www-3.ibm.com/software/data/db2/linux/ (last visited May 13, 2003); IBM,
Lotus Domino, at http://www.lotus.com/home.nsf/welcome/domino (last visited May
n133. See Intel, Open Source from Intel, at
http://developer.intel.com/software/products/opensource/ (last visited May 18,
n134. Hardware vendors are sometimes reluctant to develop open-source drivers,
because doing so can make it easier for competitors to improve their own
n135. Moshe Bar, Porting Linux to the IA64 Platform, Byte.com, May 13, 2002, at
http://www.byte.com/documents/s=7182/byt1021067742738/0513<uscore>moshe.html (last visited May 7, 2003).
n136. HP U.S., hp and open source, at http://www.opensource.hp.com/ (last visited
May 7, 2003).
n137. For example, in August 2000 companies including Compaq HP, IBM, and Sun
"announced their support" for the GNOME Foundation, which develops the GNOME graphical desktop. See
GNOME Foundation Press Releases, The GNOME and Linux Communities and Industry
Leaders Join to Create the GNOME Foundation (Aug. 15, 2000),
http://www.gnome.org/pr-foundation.html. Sun has continued to work with the
GNOME Foundation, and recently contributed to GNOME's Accessibility Framework.
SeeGNOME Foundation Press Releases, Making GNOME Accessible - Opening New Doors
at the Workplace for Users with Disabilities (Aug. 28, 2001),
n138. SeeRed Hat Network, Red Hat to Acquire Cygnus and Create Global Open Source
Powerhouse (Nov. 15, 1999), http://www.redhat.com/about/presscenter/cygnus<uscore>1999/redhat-cygnus111599.html.
n139. Raymond, supra note 117, at 113, 137.
n140. A review of one Linux distribution, Mandrake 8.0, reported that potential
users could download the product for free, purchase the product for $ 69.95
from Mandrake, or purchase a CD with the product from another party for $ 4.95.
SeeDaniel Christie, Linux Mandrake 8.0,
http://www.thedukeofurl.org/reviews/misc/mandrake80/printable.shtml (on file
n141. See, e.g., Mandrake Linux, Mandrake Linux Users Club Answers, at
http://www.mandrakelinux.com/en/club/club-answers.php3 (Apr. 4, 2002); Stephen
Shankland, SuSE Linux Gets New CEO, Cuts Staff, CNET News.com, Jul. 23, 2001,
at http://news.com.com/2102-1001-270372.html (last visited May 18, 2003). Red
Hat projected that it would lose $ 140 million over fiscal year 2002 on $ 79
million in total revenue. SeeRed Hat, Inc. Consolidated Statements of
Operations - FY2002, http://media.corporate-ir.net/media<uscore>files/NSD/RHAT/reports/GAAP<uscore>Statement<uscore>Ops<uscore>FY2002.pdf (Dec. 31, 2001).
n142. SeeRed Hat Network, Overview of Services, at https://rhn.redhat.com/feature<uscore>comparison.pxt (last visited Apr. 5, 2001); Ximian, Ximian Red Carpet:
Automated Software Maintenance and Version Management, at
http://www.ximian.com/products/ximian<uscore>red<uscore>carpet/ (last visited May 18, 2003).
n143. Peter Galli, Linux Specialist Eazel Calls It Quits, at
http://www.zdnet.com/eweek/stories/general/0,11011,2761184,00.html (May 15,
2001); Linux Today, Eazel's Demise Is Official, at
http://linuxtoday.com/mailprint.php3?action=pv<sn=2001-05-16-004-20-NW-GN (May 15, 2001).
n144. SeeMary Jo Foley, Caldera CEO: MS right to shun open source, CNETAsia, May 10,
2001, at http://asia.cnet.com/newstech/systems/0,39001152,2120279,00.htm (last
visited Jan. 20, 2003); SCO, Caldera Volution Online, at
http://www.caldera.com/products/volutiononline/ (last visited May 18, 2003).
n145. SeeMySQL AB Press Release, Leading European VCs Invest in MySQL AB (Nov. 12,
2001), at http://www.mysql.com/news/article-84.html; Michael Vizard
& Steve Gillmor, CEO of MySQL explains why open-source may be right approach for
many enterprises, InfoWorld, Dec. 20, 2001, at
has been praised on various occasions and was being used by thousands of users
in mid-1997; its current number of users is surely much higher. Samba, Samba
"96, http://www.samba.org/samba/survey/ (May 5, 1997); eWeek, i3 Awards
Finalist, http://www.eweek.com/print<uscore>article/0,3668,a=26153,00.asp (Apr. 29, 2002).
n146. In absolute numbers, Linux is used on more clients than servers. In 2001, the
installed base of Linux was estimated to be about 6.6 million units on clients
and 4.0 million units on servers. Al Gillen, IDC Report #26952, Worldwide Linux
Operating Environments Forecast, 2002-2006: Client Shipments Pick Up the Pace,
Table 4, p. 8 (Feb. 2002).
n147. Rick Cook, Supercomputers on the Cheap, LinuxWorld, Apr. 13, 2000, at
n148. SeeMac, Mac OS X System Architecture, at
http://developer.apple.com/macosx/architecture/index.html (last visited May 18,
n150. Nominum, BIND (Berkeley Internet Name Domain) (2001) (on file with author);
Red Hat Sendmail HOWTO: 1.2 History,
visited May 6, 2003).
n151. SeeInternet Software Consortium, ISC BIND, at
http://www.isc.org/products/BIND/ (last visited Jan. 20, 2003).
n152. Sendmail, Company Overview, at
http://store.sendmail.com/cgi-bin/smistore/company.jsp?BV<uscore>UseBVCookie=Yes&filepath=overview/index.shtml&heading =Company%20Overview (last visited May 18, 2003).
n153. Apache, HTTP Server Project, at http://httpd.apache.org/ (last visited May 6,
n154. Unlike many programming languages, a
"scripting language" is not normally compiled. It is often used to manipulate files on a computer,
not to develop major programs such as a word processor.
"Failures" is defined as failures for open source as a whole, not individual product
n156. GNOME Office is a different kind of office
"suite." Rather than consist of a specific set of applications, it considers itself to
include any GPL applications that use a common component architecture (for
linking files) and a common set of programming libraries. See GNOME Office, at
http://www.gnome.org/gnome-office/index.shtml (Jan. 23, 2003).
n157. A recent review in the Washington Post states,
"After using the Windows version of OpenOffice for the past week and a half, I
can attest that it either matches or beats Microsoft Office in features and
ease of use, at the cost of slower performance on older computers and the
occasional slight garbling of complicated Microsoft Office documents. It's
hardly perfect, but somebody in Redmond ought to be worried about this program." Rob Pegoraro, The Office Suite that Lets You See Past Redmond, Wash. Post, May
12, 2002, at H07, available at
n158. After Sun acquired the developer of StarOffice, it made the product available
for free and made the source code available to what became the OpenOffice
project. Sun has announced that it will begin charging for the next version of
StarOffice, but OpenOffice remains an open-source project. Sun Microsystems
Press Release, Sun Expands StarOffice Software Offering (Mar. 19, 2002), at
visited May 18, 2003).
n159. See Sourceforge, supra note 35.
n160. Around May 6, 2002, researchers under our direction executed a computer
program that automatically downloaded 38,610 Web pages from the SourceForge
site. Our researchers then automatically extracted from those Web pages a
variety of information about the 38,610 projects hosted by SourceForge and
stored that information in a database. The information presented in this
paragraph and the next was obtained from queries against that database.
n161. Overall, however, the FSF prefers that developers use the GPL for their
programs. SeeStallman, supra note 96.
n162. Projects could be in multiple stages, such as a
"production" stage for one version and a
"beta" stage for another. These figures count a project as in the
"mature" stages if either of those stages had been reached by the project.
n163. The exact number is 14,183.
n164. The exact number is 19,164.
n165. SeePart VI.C.1.b for a discussion on security and privacy concerns related to
n166. Supra notes 163 and 164.
n167. The Linux Standard Base initiative is trying to overcome this particular
problem. Linux Standard Base, Standardizing the Penguin, at
http://www.linuxbase.org/ (last visited Jan. 23, 2003).
n168. In addition to the problem with file locations, different Linux distributions
have sometimes included different (and incompatible) program
"libraries" used in running applications. Andrew Leonard, Is Red Hat becoming Linux's
Microsoft?, at http://www.salon.com/tech/feature/1999/07/14/redhat/index1.html
(Jul. 14, 1999); Charles Babcock, Linux vs. Linux, Inter@ctive Week, Mar. 19,
2000 (on file with MTTLR).
n169. This consistency is important in providing the benefits of network effects to
n170. Both the KDE and GNOME desktops have
"component" models - but they are different. A program written to use the KDE component
model cannot interoperate with a program written to use the GNOME component
model. Stephen Shankland, The Struggle for the Future of Linux, CNETNews.com,
Feb. 26, 2001, at http://news.com.com/2102-1082-253153.html (last visited Jan.
23, 2003). The use of Linux in
"embedded" devices (such as cell phones, handheld computers, robotics) faces similar
problems. Matthew Broersma, Embedded Linux Crying Out for Standards, ZDNet UK,
May 16, 2002, at http://zdnet.com.com/2102-1104-916331.html (last visited May
n171. See, e.g., Marco Iansiti
& Josh Lerner, Evidence Regarding Microsoft and Innovation, AEI-Brookings
Related Publication, Apr. 2002, available at
n172. See discussion supra Part IV.D.1.b.
n173. O'Reilly Press Room, Open Source Pioneers Meet in Historic Summit (Apr. 18,
1998), at http://press.oreilly.com/pub/pr/796.
n174. Russell Pavlicek, Get Mono from .Net?, InfoWorld, Mar. 29, 2002, at
n175. This view is not unlike the FSF's view of a GPL
"club," mentioned above.
"This free code builds a commons." Lessig, supra note 7, at 57.
n176. Id. at 56.
n178. Id. at 57. Lessig also quotes similar sentiments from Alan Cox,
"second only to Linus Torvalds in the Linux chain." Id.
"protocol" can be thought of as a definition of how to do something. An
"open" protocol is one that can be used freely by anyone; the code to implement an
open protocol can be implemented in either open-source or proprietary software.
n180. National Science Foundation, The Internet, at
http://www.nsf.gov/od/lpa/nsf50/nsfoutreach/htm/n50<uscore>z2/pages<uscore>z3/28<uscore>pg.htm#answer3 (last visited May 18, 2003).
n181. Perl is available under two licenses, one of which is the GPL and the other of
which is more permissive than the GPL.
Free Software Foundation, Various Licenses and Comments about Them,
http://www.gnu.org/licenses/license-list.html (last updated Jan. 6, 2003).
n182. Some products related to Linux might be considered innovative. For example,
projects to link together large clusters of relatively inexpensive Linux
computers into a single
"supercomputer" show promise. See NASA, infra note 284, and Sandia Lab News, infra note 285.
"BIND was originally written around 1983-1984 for use on Berkeley Software
Distribution (BSD 4.3 and later releases) of UNIX by a group of graduate
students at the University of California at Berkeley under a grant from the US
Defense Advanced Research Projects Administration (DARPA)... . The Internet
Software Consortium has outsourced the development work on BIND 9 to Nominum,
Inc." Nominum, supra note 150.
n184. Red Hat Sendmail HOWTO, supra note 150.
n185. Perl explicitly acknowledges
"ancestors" like C, awk and sh. Elaine Ashton, The Timeline of Perl and its Culture, at
http://history.perl.org/PerlTimeline.html (last visited May 18, 2003).
n186. See supra text accompanying note 154.
n187. Web servers from Microsoft, Sun, and other companies are also widely used.
n188. Apache, Apache HTTP Server Project, at http://httpd.apache.org/ABOUT<uscore>APACHE.html (last visited May 18, 2003).
n189. See supra Part IV.D.1.a for a discussion on Linux. See supra Part IV.D.1.b for
a discussion on BIND, Sendmail, Perl, and Apache.
n190. SeeEvans, supra note 65; Liebowitz, supra note 65.
n191. Open source has potential in another important area:
"embedded devices." These include set-top boxes for advanced cable television services, cash
registers, ATMs, personal digital assistants (PDAs, like the Palm family of
products), and more. These devices need an operating system; many also need at
least some degree of network or even Internet connectivity. Since these devices
tend to have relatively fixed user interfaces, they do not face the usability
requirements of operating systems on PCs. Further, developers of the hardware
often need operating systems that are highly customized to their hardware;
open-source operating systems such as Linux permit them to do their own
customization. But many other operating systems are already widely used for
n192. See, e.g., Brian Behlendorf, Open Source as a Business Strategy, in Open
Sources: Voices From the Open Source Revolution 149 (Chris DiBono et al., eds.
1999), available at http://www.oreilly.com/catalog/opensources/book/brian.html.
n193. The Open Group: History and Timeline, UNIX Past, at
http://www.unix-systems.org/what<uscore>is<uscore>unix/history<uscore>timeline.html (Jun. 25, 2001).
n194. Evans, supra note 130.
n195. Sun Store U.S., Sun Fire B100s Blade Server,
http://store.sun.com/catalog/doc/BrowsePage.jhtml?catid=93754 (last visited May
n196. Sun Store U.S., Sun LX50 Server,
http://store.sun.com/catalog/doc/BrowsePage.jhtml?cid=85662&parentId=48589 (last visited May 6, 2003).
n197. 2001 Annual NIPA Revision, Bureau of Economic Analysis, and the U.S.
Department of Commerce, Tables 1, 11 (Aug. 2001), available at
http://www.bea.doc.gov/bea/papers/tables.pdf (last visited May 18, 2003).
<um A>ltestenrat Stimmt f<um u>r Linux auf Bundestags-Servern [The
<um A>ltestenrat, council of the oldest members, votes for Linux for the Bundestag
servers], Heise Online, Mar. 14, 2002 [hereinafter
<um A>ltestenrat Stimmt], available at
n200. Stallman Addresses Brazilian Congress, supra note 6.
n201. Lessig, supra note 7, at 247.
n202. Adam Smith, An Inquiry Into the Nature and Causes of the Wealth of Nations 423
n203. Id. at 423.
n204. Kenneth J. Arrow and John R. Hicks shared the 1972 Nobel prize in economics
for early work in this area. Nobel e-museum, Bank of Sweden Prize in Economic
Sciences in Memory of Alfred Nobel 1972, at
http://www.nobel.se/economics/laureates/1972/ (last modified Jun. 16, 2000).
n205. The Royal Swedish Academy of Sciences Press Release, The 2001 Sveriges
Riksbank (Bank of Sweden) Prize in Economic Sciences in Memory of Alfred Nobel
(Oct. 10, 2001), at http://www.nobel.se/economics/laureates/2001/press.html.
n206. Ronald H. Coase, The Problem of Social Cost,
3 J.L. & Econ. 1 (1960).
n207. Stiglitz, supra note 9, at 163.
n208. Michael L. Katz
& Harvey S. Rosen, Microeconomics 399 (Irwin/McGraw-Hill 1998).
"Price = marginal cost" is the condition for socially optimal production in the simple textbook model
n210. Elzinga, supra note 44; David S. Evans
& Richard Schmalensee, Some Economic Aspects of Antitrust Analysis in
Dynamically Competitive Industries, in Innovation Policy and the Economy 1
(Adam B. Jaffe et al. eds., 2002).
n211. Economists have used models of dynamic competition to examine many different
economic issues including patent races, standards and compatibility, and
diffusion of technology. See, e.g., Michael L. Katz
& Carl Shapiro, Network Externalities, Competition, and Compatibility,
75 Am. Econ. Rev. 424 (1985); Michael L. Katz
& Carl Shapiro, R&D Rivalry with Licensing or Imitation,
77 Amer. Econ. Rev. 402 (1987); Gene Grossman
& Carl Shapiro, Dynamic R&D Competition, 97 Econ. J. 372 (1987); Drew Fudenberg
& Jean Tirole, Pricing a Network Good to Deter Entry, 48 J. Indus. Econ. 373
(2000); Jennifer F. Reinganum, The Timing of Innovation: Research, Development,
and Diffusion, 1 Handbook of Industrial Organization 849 (Richard Schmalensee
& Robert D. Willig, eds. 1989); Jean Tirole, The Theory of Industrial
Organization 389-421 (1988); Paul Stoneman, Economic Analysis of Technological
Change (1983). However, others note that it is extremely difficult to model
many aspects of competition in these types of industries. See, e.g., John
Sutton, Technology and Market Structure: Theory and History 341, 341-413
n212. James Bessen, Open Source Software: Free Provision of Complex Public Goods, at
(working version Jun. 2002); Gilles Saint-Paul, Growth Effects of Non
Proprietary Innovation, at
http://www.idei.asso.fr/Commun/Articles/St-Paul/os1.pdf (Oct. 16, 2001); Klaus
& Monika Schnitzer, Public Subsidies for Open Source? Some Economic Policy
Issues of the Software Market,
(preliminary version Jun. 14, 2002).
n213. See, e.g., Elzinga, supra note 44. See also Microsoft Corp., Form 10-K for
Fiscal Year Ended Jun. 30, 2001 (citing
"the software business is intensely competitive and subject to rapid
technological change"); Oracle Corp., Form 10-K for Fiscal Year Ended May 31, 2001 (stating
"the computer software industry is intensely competitive and rapidly evolving"); Sun Microsystems, Form 10-K for Fiscal Year Ended Jun. 30, 2001 (noting
"we compete in the hardware and software products and services markets. These
markets are intensely competitive"); SAP AG, Form 20-F for Fiscal Year Ended Dec. 31, 2001 (discussing that
"the software and Internet industry is intensely competitive").
n214. Dennis W. Carlton
& Jeffrey M. Perloff, Modern Industrial Organization 56, 56-58 (3d ed. 2000).
n215. Patrice-Emmanuel Schmitz, Part 3: The Open Source Market Structure 7, in Study
into the Use of Open Source Software in the Public Sector, Interchange of Data
between Administrations, Jun. 2001,
http://europa.eu.int/ISPO/ida/export/files/en/835.pdf (last visited May 18,
n216. Id. at 68. Article 81 (1) prohibits
"... all agreements between undertakings, decisions by associations of
undertakings and concerted practices which may affect trade between Member
States and which have as their object or effect the prevention, restriction or
distortion of competition within the common market ..." Paragraph 3 exempts from the scrutiny of paragraph 1 those practices that
"... improving the production or distribution of goods or to promoting technical
or economic progress, while allowing consumers a fair share of the resulting
benefit ..." IDA argues that the use of OSS could be justified as the practice that
"technical or economic progress, allowing consumers a share of the resulting
n217. Id. at 74.
n218. Id.at 15.
n219. Id. at 39.
n220. Id. at 16.
n221. European Parliament resolution, supra note 2; see also Paul Meller, European
Parliament Adopts Echelon Report, Computerworld, Sept. 5, 2001,
n222. The luK recommendation was based on the INFORA study commissioned by the
Ministry of Interior, which analyzed various scenarios of Bundestag IT
<um A>ltestenrat Stimmt, supra note 199. See also Linux f<um u>r die Server, Windows f<um u>r PC im Abeorgnetenhaus [Linux for the servers, Windows for PC in the
(Feb. 2, 2002); Studie empfiehlt Schily Server-Umr<um u>stung auf Linux [German Minister of the Interior added to change servers to
Linux], Heise Online, Dec. 7, 2001,
n224. For instance, a Social Democrat, J<um o>rg Tauss, announced,
"My wish would be to declare the entire Bundestag a Microsoft-free zone." See John Ness
& Stefan Theil, The Threat of a Linux Generation, Newsweek Int'l, Mar. 11, 2002,
available at http://www.my-opensource.org/lists/myoss/2002-03/msg00010.html.
The Greens stated that open source represents a special chance for the European
software segment, since for the first time the United States is not leading in
the field. They also stated,
"Open Source entspricht der gr<um u>nen Philosophie von Transparenz, B<um u>rgerbeteiligung und Partizipation" ["Open Source corresponds to the green philosophy of transparency and citizen
participation"]. See http://www.gruene-fraktion.de/rsvgn/rs<uscore>dok/0,,669,00.htm (on file with author). Steffi Lemke, the representative of
the Greens, announced that the decision to migrate towards Linux in the
Bundestag was the first important step towards the adoption of open source. Il
parlamento tedesco dice si a Linux, Webnews, Mar. 11, 2002, at
n225. Schmitz, supra note 215, at 28.
n226. See Mandrake Linux, Le Ministere de la Culture, connu pour son engagement en
faveur du logiciel libre, confie a MandrakeSoft la mise en place de serveurs
Linux dans six musees de province, Oct. 16, 2000,
n227. Schmitz, supra note 215, at 33-35.
n228. Proposal for a Bill Purporting to Generalize the Use of the Internet and of
Free Software in the Administration (1999) (Fr.), available at http://www.senat.fr (on file
n229. Proposal for a Parliamentary Bill Purporting to Reinforce Freedom and Security
of Consumers and to Enhance Competition in the Information Society (2000)
(Fr.), available at http://www.assemblee-nat.fr/propositions/pion2437.asp (last
visited May 18, 2003).
n230. SeePaul Festa, Governments push open-source software, CNet News.com, Aug. 29,
2001, at http://news.com.com/2100-1001-272299.html?legacy=cnet.
n231. SeeLinux On, Amparo e a primeira cidade de S<tild a>o Paulo a adotar Software Livre [Amparo is the first city in the State of S<tild a>o Paulo to adopt open-source software] (Sept. 3, 2002) (on file with author).
n232. SeeClaudio M. Machado, Recife na rota do Software Livre [Recife in the route
of the open-source software], at
http://www.pernambuco.com/tecnologia/arquivo/softlivre1.html (last visited May
n233. See Projecto Software Livre - RS, Aprovado Projecto de Lei Sobre Software
Livre em Porto Alegre [Approved act about open-source software in Porto Alegre]
(Dec. 14, 2001) (on file with author).
n234. The cities include Curitiba, Florianopolis, S<tild a>o Paulo and the states include Rio de Janeiro, Bahia, Espirito Santo, Minas
Gerais, Parana, Pernambuco, S<tild a>o Paulo, and Rio Grande do Sul. Id.; see also Festa, supra note 230.
n235. Festa, supra note 230.
n236. See Open Source Nella Provincia di Pescara, at
http://www.interlex.it/pa/ppescara.htm (May 15, 2002).
n237. See Boletin Oficial del Parlamento de Canarias,
http://www.parcan.es/pub/Bop/5L/2001/166/bo166.pdf (Jul. 20, 2001).
n238. Brian Proffitt, Venezuela's Government Shifts to Open Source Software,
LinuxToday, Aug. 30, 2002, at http://linuxtoday.com/mailprint.php3?action=pv<sn=2002-08-30-01126-NW-LL-PB.
n242. Matt Berger, LinuxWorld Expo: Chinese Government Raises Linux Sail, InfoWorld,
Aug. 13, 2002, at
n244. Julia Scheeres, Peru Discovers Machu Penguin, Wired News, Apr. 22, 2002, at
http://www.wired.com/news/business/0,1367,51902,00.html; Thomas C. Greene, MS
in Peruvian Open-Source Nightmare, The Register, May 5, 2002,
n245. In September 2000, a member of the Chamber of Deputies proposed legislation
that would create a procurement preference for OSS. The proposal would require
that the federal government, autonomous federal agencies, and state-owned
enterprises use and acquire only OSS. The bill expired in March 2002, and a new
Free Software was submitted to the Chamber of Deputies of National Congress on March 27,
2002. See Marcelo Dragan, Bill 5613-D-00,
modified Jan. 7, 2003).
n246. See Zusammentassung der Rede der Staatssekret<um a>rin Brigitte Zypries [Resume of the Speech of Secretary of State Brigitte
Zypries], http://linux.kbst.bund.de/auftakt/vortraege/zypries/ (Jun. 8, 2000).
n247. See id.
n248. See Open Source Software im Parlament [Open-source software in Parliament],
http://linux.kbst.bund.de/bundestag/bt-pp14.199.html (last modified Nov. 16,
n249. Rick Perera, German Parliament Considers Linux Switch, ITWorld.com, Oct. 16,
2001, at http://www.itworld.com/Comp/2384/IDG011016germanlinux/pfindex.html.
n250. See Ein k<um u>hner Plan: Linux statt Windows [A Bold Plan: Linux Instead of Windows], Oct. 7,
n251. See Bundesregierung gegen
"Monokultur" bei Software [Federal government against monoculture with respect to
software], Heise Online, Jul. 5, 2001,
n252. SeeFederal Ministry of Interior Affairs, Linux-Tag: Abh<um a>ngigkeit von Softwareherstellern verringern [Linux-day: Reduce Dependency on
Software Producers], Die Welt, Jul. 6, 2001,
n253. SeeLower Saxony Parliament, Niedars<um a>chsischer Landtag - 14. Wahlperiode, Drucksache 14/1492 at 1 (Aug. 2, 2000)
(reporting a brief question by Deputy Frau Harms),
n254. Schmitz, supra note 215.
n255. Bud P. Bruegger, et al., SPIRIT - Accelerating the Uptake of Open Source in
Healthcare, at http://www.sistema.it/LinuxAfrica2001/ (last visited May 9,
n257. Knut Blind et al., Micro-and Macroeconomic Implications of the Patentability
of Software Innovations. Intellectual Property Rights in Information
Technologies between Competition and Innovation 6,
http://www.sicherheit-im-internet.de/download/softwarepatentstudie<uscore>e.pdf (Sept. 2001).
n258. SeeLessig, supra note 7, at 56-57.
n259. See Bundesregierung gegen
"Monokultur" bei Software, Heise Online, Jul. 5, 2001, at
n260. Beratende Stellungnahme des Landesrechnungshofs Schleswig-Holstein zur
Informationstechnik der Landtagsverwaltung [Audit Study of the State Court of
Audits Schleswig-Holstein on the Information Technology of the State Parliament
Administration], Doc. No. LRH Pr 1255/2000, at 13, Oct. 31, 2000 [hereinafter
Beratende], http://www.lrh.schleswig-holstein.de; Deliberation of the Issue in
the Budget Committee of the Regional Parliament 11-13, Jan. 18, 2001,
n261. Schmitz, supra note 215, at 68.
n262. Bernd Lutterbeck et al., Security in Information Technology and Patent
Protection for Software Products: a Contradiction? 4 (2000),
http://www.sicherheit-im-internet.de/download/BMWi<uscore>Gutachten<uscore>englisch.pdf (last visited May 18, 2003).
n264. Antrag [Proposed Legislation] under Deutscher Bundestag Drucksache 14/5246 at
5, Jul. 7, 2001, http://dip.bundestag.de/btd/14/052/1405246.pdf; Deutscher
Bundestag Plenarprotokoll 14/199 [Federal Parliament Minutes 14/199] at 19577,
Nov. 9, 2001 (approving proposed legislation),
n265. Proffitt, supra note 238.
n266. Stallman Addresses Brazilian Congress, supra note 6.
n267. Working Group on Libre Software,
Free Software / Open Source: Information Society Opportunities for Europe? Version 1.2 (Apr.
2000), http://eu.conecta.it/paper.pdf (last visited May 18, 2003).
n268. Proffitt, supra note 238.
n269. Lessig, supra note 7, at 247.
n270. See, e.g. Lawrence Lessig, Code and Commons, Keynote at the Conference on
Media Convergence (Feb. 9, 1999) (transcript available at
Lawrence Lessig, May the Source Be with You, WIRED, Dec. 2001,
n271. See, e.g., Richard Stallman, UNESCO and
Free Software, UNESCO
Free Software Portal, at http://www.unesco.org/webworld/portal<uscore>freesoft/stallman<uscore>011001.shtml (last updated June 26, 2001). This article addresses UNESCO's
Free Software Foundation that promotes GNU/Linux systems.
n272. Robert Lemos, Too Much Trust in Open Source?, ZDNet News, Mar. 20, 2002, at
http://zdnet.com.com/2100-1104-864256.html; Wayne Rash, Proprietary Apps Have
Security Problems - But So Does Open Source, ZDNet News, Apr. 4, 2002, at
n273. See, e.g., Mitch Wagner, Virus Attacks Linux, Windows Systems,
Internetweek.Com, Mar. 30, 2001, at
n274. Ad-supported programs are an exception: users generally should assume that
they engage in exactly this type of activity. Reports of
"sneakware" in file sharing programs such as Kazaa have also surfaced recently. See, e.g.,
& Rachel Konrad, PC Invaders, CNet News.Com, Apr. 18, 2002 at
n275. For example, assorted parties long suspected that the National Security Agency
in the United States had put such a backdoor into the DES encryption method
before authorizing its use in the 1970s. There is no evidence, however, that
such a backdoor ever existed. SeeSteven Levy, Crypto: How the Code Rebels Beat
the Government, Saving Privacy in the Digital Age 38-39, 56, 60-64 (2001).
n276. Beratende, supra note 260; Deliberation of the Issue in the Budget Committee
of the Regional Parliament, supra note 260.
n277. Michel Sapin, Address at the Opening of the Second Meeting on
Free Software in the Administration (Nov. 15, 2001), available at
n278. See Zusammenfassung der Rede der Staatssekret<um a>rin Brigitte Zypries [Summary of the Speech of State Secretary Brigitte
Zypries], Koordinierungs-und Beratungsstelle der Bundesregierung f<um u>r Informationstechnik [Federal Agency for the Coordination and Advice on
Information Technology], http://linux.kbst.bund.de/auftakt/vortraege/zypries/
(speech at the University of Applied Science [Fachhochschule] of the
Federation, Br<um u>hl on Jun. 8, 2000).
n279. IDC Server Tracker database, Q196-Q302, at http://www.idc.com (last visited
Nov. 26, 2002).
n281. Al Gillen et al. IDC Report #25118, Worldwide Client and Server Operating
Environments Market Forecast and Analysis Summary, 2001-2005, Table 2, p. 12
n282. Lessig, supra note 7, at 247.
n283. For example, throughout the 1960s the Advanced Research Projects Agency
(ARPA), which was part of the Department of Defense, conducted research on
communications. In 1969, it created a network of computers called ARPANet,
which was designed to allow continued communications in the event of a nuclear
attack. ARPANet and related research formed the basis for today's Internet. The
National Science Foundation (NSF), which maintained the main Internet backbone
and subsidized domain names, first allowed use of NSFNet for commercial
purposes in 1991 and fully shifted its responsibilities to the private sector
in 1995. See National Science Foundation, supra note 180.
n284. SeeNASA at Goddard Space Flight Center, Beowulf at NASA/GSFC, at
http://beowulf.gsfc.nasa.gov/ (last modified Apr. 24, 2000). See also,
Sterling, supra note 5.
n285. Laboratories Support, Facilities, and Human Resources, 54 Sandia Lab News
(2002), at http://www.sandia.gov/LabNews/LN02-22-02/LA2002/la02/support<uscore>story.htm (last modified Feb. 28, 2002).
n286. Reiser, supra note 128.
n287. Sandia National Laboratories Press Release, Sandia's DAKOTA Toolkit on Web and
Available for Free (Apr. 8, 2002),
n288. The Patent and Trademark Law Amendments Act (also known as the Bayh-Dole Act)
of 1980 encouraged universities and small businesses to commercialize
inventions by permitting exclusive licensing of intellectual property that was
developed with public funding. In exchange for the right to elect title to an
invention, the licensor must agree to properly manage the invention and provide
reports to the government. Since the passage of Bayh-Dole, universities have
increasingly set up technology transfer programs and actively patented and
commercialized inventions. SeeCouncil on Government Relations, The Bayh-Dole
Act: A Guide To The Law and Implementing Regulations (Sept. 1999), at
n289. Indeed, the GPL is incompatible with any assertion of patent rights.
n290. Lessig, supra note 7, at 329-330.
n293. Lessig, supra note 7, at 247.
Prepared: July 3, 2003 - 5:02:29 PM
Edited and Updated, July 4, 2003
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