Gal & Elkin-Koren The Dark Side of Viral Open Source Draft, May 23, 2011
The Dark Side of Viral Open Source:
Obstacles to Welfare-Enhancing Synergies
Michal S. Gal and Niva Elkin-Koren[1]
very preliminary draft, comments most welcome
Abstract
The creation of free and open source code through social networks has been celebrated as one of the most interesting and heartening phenomena of the internet age. The main legal platform chosen to facilitate such joint creation is the GNU General Public License (GPL). Software released under the GPL enables anyone to use, modify, and distribute the code. Yet it conditions such rights on virality: every work based on the code must also comply with its restrictions. This article analyzes the welfare effects of virality. It shows that virality canincrease motivations for innovation both in open source and in commercial code yet at the same time impede innovation and growth by possibly limiting synergies between technologies. It then analyzes the market responses to the GPL's virality.Such analysis is timely given that the GPL now celebrates exactly 20 years since the inception ofits most famous version.
Introduction
Chapter 1: The development of open source
The Legal Framework: GPL
Chapter 2: The Welfare Effects of Virality
A. Possible Positive Effects of Virality
B. Possible negative welfare effects of virality: Limiting Synergies
C. Partial Conclusion: The Tradeoff
Chapter 3: Industry Reactions and Possible (Partial) Solutions
A. Technological Solutions
1. "Write around" the Source Code
2. If you can't beat them, join them
3. Require the user to make the linkage
4. Create a technological buffer
B. Legal Solutions: Changing licensing terms
1. Dual Licenses
2. Change from within: Create exceptions in the GPL
3. Providing Public Funding for Synergies
4. Creation and Use of New Licenses
C. Legal Solutions: Challenging Viral Licenses under Public Policy
1. Challenging the scope of Virality under Copyright
2. Compulsory Licenses: Virality as an antitrust violation?
Chapter 4: Conclusions
Introduction
The creation of free[2] and open source code ("FOSS") through social networks has been celebrated as one of the most interesting and hearteningphenomena of the internet age.[3]Indeed, the collaboration of numerous software developers, contributing voluntarily and without immediate monetary personal benefit[4]to the development of better software to be used and modified freely by all, is an inspirational story, which challenges some of our notions about what motivates people to share resources such as time, skill and effortand about how markets work. It is a story which is told –albeit with different emphasis- by libertarians and anarchists, anti-market activists and free market advocates alike.[5]
Open source projects have already managed to challenge deep-rooted market structures and behaviors.Their success is astonishing: Linux, the world's largest FOSS platform, has over 5,000 developers and, according to itsofficial site,up to 2.4 million users.[6] It is estimated that 5.1% of the market for operating systems use open source codes.[7] Some markets are even dominated by FOSS: Apache holds 62% of the world market for web servers,[8] and commercial firms such as Microsoft have shrunk their investments in commercial alternatives. Indeed, as Raymond observed, the "bazaars" have taken down some of the "Cathedrals."[9]FOSS is encouraged and used by governments in many countries, including Germany, U.S., France, Malaysia and China. It wasalso embracedby leading commercial technology firms such as IBM,Google, Amazon, Sun, Netscape, Java and Oracle, and recently even by Microsoft.[10]The open source movement has also inspired other industries to adopt somewhat similar models, one major example being Creative Commons, which applies to all copyrighted materials.It is thus safe to say that open source is here to stay, and is likely to continue to shape social and market interactions. It is thus important to determine the welfare effects of FOSS.
Open source is not just a social or technological phenomenon- it is also a legal one: it builds on the existing proprietary system of copyright and on contract law in order to create a set of legal rights and obligations that are attached to the source code. While licenses for the use of FOSS vary, most FOSS projects are still licensed under the GNU General Public License (“GPL”), or relatively similar versions.[11]The GPL creates a unique bundle of rights: it allows anyone to copy, modify and distribute its code.In return, it requires that anywork based on the codethat the user distributes will be licensed under the GPL as well, a condition which has come to be known as virality.[12]
Virality creates an interesting and important tradeoff in the way it affects incentives for dynamic efficiency. By mandating that all improvements be distributed under the GPL and by preventing the appropriability of the code, virality contributes to incentives for increased innovation within FOSS and facilitates its dissemination. It also increases competitive pressures on commercial competitors to innovate. Yet, at the same time,viralitypotentially impedes creation and innovation which are based on synergies or complementarities between different codes. This is true with regard to most projects that involve both open and commercial code in the computer ecosystem, given that viralitysignificantly limits the ways that investments in synergies can be commercially appropriated. Such effects might be especially significant where new industries are created under viral licenses and become locked into a strict legal framework. Alternatively, synergies and future innovations might be limited where the dominant platforms are commercial and FOSS code cannot interoperate with them because of its virality. The virality conditioneven limitssome synergies between FOSS projects. The analysis thus revealsnot only the benefits of the GPL's virality, which are often availed, but also the dark side of viral open source.
Given these obstacles to synergies, the market has no stayed unresponsive.Rather, the widespread adoption of viral licenses has led market players to try and devise ways to reduce the obstacles created by virality on possible synergies. This article analyzes such ways and evaluates their ability to reduce the obstacles erected, as well as their effects on social welfare. The time to evaluate such market responses is ripe: exactly twenty years ago, the most known version of the GPL, GPL version 2, was released.
The rest of the article is structured as follows. The first chapter sets the stage by reviewing the raison d'être as well as themodus operandiof the FOSS movement, with a special focus on viral licenses. The second chapter examines the actual and potentialwelfare effectsof viralFOSS. We identify both welfare-enhancing effects as well as welfare-reducing effects. Most importantly, the analysis focuses onthe potential of viral licenses to increase or to reduce innovation and further development of knowledge and ideas.
The third chapter analyzes the market responses and available legal tools that currently exist, both in the antitrust and the intellectual property spheres, in order to ensure that the best incentives for dynamic efficiency are created. We show that the tools adopted by the marketdo not deal effectively with the GPL's modus operandi.Nonetheless, we show that some legal tools might be used to increaseinnovation in the market. While not challenging the significant benefits FOSSand the GPL can offer, our conclusions shake some of the most basic assumptions about the welfare effects of viral open source and make a case for placing some limitations on suchviral terms.
Chapter 1: The development of open source
FOSS started as a one man revolution to proprietary software where a company keeps the source code of its applications secret (or "closed") thereby making it difficult for others to change it, even for their own non-commercial purposes.[13]The creation of a new, free, and open operating system, the Linux code, in 1991, signaled the beginning of a new era. Linux was further developed by a virtual and international community of software developers,connectedmainly through the internet,[14] whodonated their time and effort outside their employment agreements.[15]Motivations of contributorswere diverse, and includednon-market motivations such as social interactions via cooperative creative activity[16] and the thrill in taking on proprietary software giants like Microsoft, as well as market motivations, including reputation and experience.[17]In addition, the motivating philosophy of softwarefreedom appealed to many software developers who believed that source codeshould be available for copying, modification, and subsequent distributionin order to facilitate software innovation and improvements.[18]
This was no less than a revolution in technology production: it enabled cooperation on a scale not envisioned before, as it significantly lowered production costs and was not limited by the traditional boundaries of corporate entities or by informational obstacles, due to the accessibility of the production platform and the transparency of the code. The enabling legal frameworkallowed users to identify problems and others to fix them without asking for anyone’s permission and without engaging in costly transactions.[19]This, in turn,created more flexible and lower costsoftware with a serious shot at better quality,which in turn attracted more users and developers.[20]As Benkler argues, collaborativeFOSS is the "quintessential instance of commons-based peer production."[21]
As one of us noted elsewhere,[22] the open source movement situates its activism in civil society, by aiming at changing social practices and social norms related to software. It advocates the useof legal rights in a way that is likely to change their meaning. Developers are called to voluntarily restrain the power they were granted under copyright law for the benefit of society at large. Ultimately, the purpose is to redefine social norms and promote values of sharing and reusing. The vehicle for such social change makes use of existing legal frameworks of copyright and contract, to create a new form of copyright licenses. The concept of the use of existing copyrights in a way which requiresanyonewho redistributes the work, with or without changes, to pass along the freedom to further copy and change it, has come to be known as "copyleft."[23]
FOSS has outgrown its humble origins. Today it applies to non-marginal parts of software markets. While in 2002 only 500 FOSS projects existed, by 2007 their number rose dramatically by almost ten-fold.[24] This dramatic change was fuelled, inter alia, by the endorsement of OS projects by severallarge software companies. The most dramatic turning point was when IBM announced that it would invest $1 billionin Linux, paying some of its developers to work as volunteers on FOSS projects and pledging to not enforce some of its patents, if used in connection with Linux.[25]Indeed, FOSS has become a commodity in many internet platform markets. As FOSS becomes more popular and continues to develop, there is a stronger motivation to use it or, at least, to create compatibility with it.
Notably, today, manyFOSSprojects are commercial, funded by for-profit companies, which hybridize proprietary software appropriation techniques with conventional FOSS volunteerism-centric development.[26]Dominant firms have invested in such projects, where there is both programmer interest and strategic benefit to the firm.The licensing platforms used for such projects vary greatly and generally do not include viral terms. Still, many importantFOSS projects are licensed under the GPL. They are the focus of this paper.
A. The Legal Framework: GPL[27]
The GPL, which is a non-exclusive public license,adopted many public domain licenses concepts, with the added twist of virality.[28]It has been updated twice, but its basic principles still stand.[29]We shall refer to version 2, which is used in many major FOSS projects, including Linux.
The GPL has become the standard license for most FOSS projects: it is used by more than 70% of the market for open source.[30]Yet this percentage does not indicate the GPL's real effect, which stems from the importance of several large projects which have adopted it, such as Linux and MySQ, as well as from the fact that in many other cases in which a different license is used, the GPL acts as a benchmark, and thus its major obligations have spill-over effects into other licenses as well. Indeed, more than 85% of active FOSS projects include some version of the GPL or similarly structured license.[31]These facts, in themselves, indicate an important potential benefit of the GPL: it creates standardization and thus reduces transaction costs that would arise from studying each license.[32] This is especially true given that the GPL is supported by the Free Software Foundation ("FSF"), which provides legal support on an on-going basis.[33]Yet this very trait may also increase its negative welfare effects, if the market is locked-in into a sub-optimal license.
The strategy of the GPL for promoting the sharing and reuse of software rests on three pillars: copyright in the code, free and open source code, and virality.
The GPL asserts copyright in the code, thereby enabling the licensors to determine the terms of use and to prevent others from capturing the code and making it proprietary.[34]
The other two components establish the unique "deal" that the GPL offers to potential users. This "deal" offers significant benefits: Software released under the GPL allows anyone to copy, modify, and distribute the code. The granting of such wide rights is a major component of the FOSS ideology, as the GPL's preamble states: "The licenses for most software...are designed to take away your freedom to share and change the works. By contrast, the [GPL] is intended to guarantee your freedom to share and change all versions of a program--to make sure it remains free software for all its users."[35]To facilitate such modifications, the GPL mandates the distribution not only of the object code- which consists of binary instructions to a computer on how to operate the software- but also the source code: such instructionsin human language. The benefits are clear: open source makes it much easier for software developers to understand the code, modify it or write applications to it. Such modifications range from minor bugfixes to the reuse of source code in entirely different projects.[36]These benefits go well beyond those granted without monetary compensation in most other licenses.
In exchange for such broad rights, the user is required to agree tovirality: any distributor of the code, a derivative work or any work "based on the code" must releasetheentire work under the GPL,[37] to ensure that any subsequent work would be subject to the same contractual terms as the original work.[38]As a result, incentives to use GPL-covered code in proprietary derivatives are significantly reduced.[39]The GPL's preamble justifies this limitation as follows: “To protect your rights, we need to make restrictions that forbid anyone todeny you these rights or to ask you to surrender the rights."[40] The GPL includes no exceptions to this condition.[41]
It is noteworthy that the virality conditiondoes not limit the use of GPL-covered FOSS in private computer ecosystems and in development processes, so long as the protected code does not constitute an integral part of the final product. For example, a commercial firm can freely use FOSS for quality testing of its products or for analyzing the results of such tests, and even configure it for its own internal needs. This results from the fact that virality's triggering event is not copying, using or even modifying of the code, but rather its redistribution. Also, according to the GPL, virality only applies to works "based on" the GPLed code. Thus, any work that does not meet this condition, will automatically be exempt from virality. As elaborated below, the scope of works that meet this definition is unclear.
The GPL also does not place any limitations on the price that can be charged for the code. Rather, the term freedom relates to the freedom to use, redistribute, and modify the code. Yet because everyone is free to distribute the code, its price will tend to be the market price for distribution:Anyone selling the code for a higher price can be easily outbid.[42]
The business model on which GPL-covered projects operate enables firms to compete and charge for services and other economic complements related to FOSS, such as its maintenance, support and warranty. Red Hat Inc., for example, sells media, manuals and support for the installation and maintenance of Linux. Such services may be required where the FOSSmust be configured to meet a customer's needs or where quality assurance is important.
Chapter 2: The Welfare Effects of Virality[43]
As GPL-licensed FOSS projects become more prominent in their respective markets, the need to evaluate their welfare effects increases.Accordingly, this chapter evaluatesboth the positive as well as the possibly negative welfare effects of the GPL's virality. As we shall see, virality creates a unique tradeoff between different types of innovation.