Friday, June 14, 2013

European Commission looking into competition-chilling effects of Android licensing practices

Yesterday the Financial Times, the most influential newspaper in EU circles, reported on a leaked document showing that the European Commission's competition enforcement division has sent out a reasonably detailedquestionnaire to "device makers and mobile operators", and the 82 questions indicate that a recently-lodged complaint by industry players including Nokia, Microsoft and Oracle over Google's Android business model and licensing practices has led to preliminary investigations. At this stage it's not a given that there will be a full-blown, formal inquiry. And even when formal investigations start, they don't always result in antitrust charges. It's too early for a guilty verdict, but I am convinced that the European Commission is right to take this issue seriously.

After the filing of the complaint became known, certain Google-aligned critics of the initiative primarily made the following two points:

  • The complainants are Google rivals.

  • Android is open source.

The first point is completely irrelevant: in this context, only merits matter, and motives don't. Obviously companies that depend on Google in commercial terms are not going to bring a complaint against it, but Google's own partners could ultimately benefit from whatever comes out of this process. The second point -- open source -- is a distortion, but to the extent it holds truth, this is just one of various considerations in a competition context and not a definitive answer. In this post Id like to quickly share a few thoughts about this.

The accurate characterization of the licensing situation for Android's software code is not "open source", but "mixed source". There are some key closed-source components, and Google requires device makers to distribute them if they want to use the Google logo and, especially, the little green robot logo, and it will give them those apps (such as the Google Play app store client) only if they accept Google's terms. And it's not just about the code: for commercial reasons most device makers also license the Android trademark. The Android license most device maker take is a mixed-IP license, and the software part of the license it's a mixed-source offering.

The Skyhook-Google litigation brought to light hundreds of pages of Google-internal dccuments that show how tightly the search engine company controls its mobile operating system and ecosystem especially through its arbitrary approach to "compatibility", which one internal email says Google using as a "club to make [device makers] do what [Google] want[s]".

There's a fundamental difference between Free and Open Source Software (FOSS) philosophy and competition theory. FOSS is all about the theoretical freedom of end users to inspect and modify code, and to use and redistribute not only the original version but also the modified one, while competition theory is about the commercial realities in a given market. You can be "free" from a FOSS point of view to modify and use a codebase, but you can still be constrained i practical, commercial terms due to customer expectations. You can have freedom, but will people buy what you build?

Such constraints are not a binary question like being free or in jail in a Monopoly game. Different players will be constrained to different degrees if they serve different markets and/or pursue different business models. The fact that Amazon uses large parts of Android without a license from Google doesn't mean that the same would work for Samsung or HTC; and companies focusing on the Chinese market are in a different position than those who generate most of their sales in the U.S. and Europe (even in China there's profound concern over Google's heavy-handedness with respect to Android). If something works for some companies under special circumstances, it doesn't necessarily work for most of the market. But the functioning of the overall market is what competition enforcers care about.

Competition is all about choice. Customers get the greatest benefit if different business models co-exist and compete. I have been defending open source interests for some time, but I wouldn't want to live in a world in which open source is the only type of business model that works because certain kinds of innovation aren't financially viable on open source terms.

It's a fallacy to take a short-term perspective and not worry about an antitrust complaint alleging that the market leader provides its platform on a "sub-cost" basis. Sure, today we'll all save money if someone gives something away for free. But if there are strings attached, we may all ultimately pay a greater price. We'll be locked in, and some innovation that would enhance our lives won't happen further down the road. Antitrust law is there to prevent this from happening.

The European Commission has previously recognized that "open source" must not be beyond the reach of competition enforcement. Its in-depth investigation of Oracle's acquisition of MySQL (as part of Sun Microsystems) delayed the closing of that transaction by about five months. I was a vcocal opponent of the deal. In a guest post I wrote for the Brussels-based platform I reached the following conclusion:

Given the increasing importance of "free" and "freemium" business models, there can be no doubt that the related case-law will continue to be developed over the coming years and decades. The rule of law must be adjusted to these new realities, not surrender in their face.

Values persist; methods evolve.

Google's Android strategy is such a new reality involving a "free" business model.

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