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Government Preferences for Promoting Open-Source Software: a Solution in Search of a Problem, 9 Mich Michigan Telecommunications and Technology Law Review Volume 9 | Issue 2 2003 Government Preferences for Promoting Open- Source Software: A Solution in Search of a Problem David S. Evans NERA Economic Consulting Bernard J. Reddy NERA Economic Consulting Follow this and additional works at: http://repository.law.umich.edu/mttlr Part of the Commercial Law Commons, Computer Law Commons, and the Science and Technology Law Commons Recommended Citation David S. Evans & Bernard J. Reddy, Government Preferences for Promoting Open-Source Software: A Solution in Search of a Problem, 9 Mich. Telecomm. & Tech. L. Rev. 313 (2003). Available at: http://repository.law.umich.edu/mttlr/vol9/iss2/3 This Article is brought to you for free and open access by the Journals at University of Michigan Law School Scholarship Repository. It has been accepted for inclusion in Michigan Telecommunications and Technology Law Review by an authorized editor of University of Michigan Law School Scholarship Repository. For more information, please contact [email protected]. GOVERNMENT PREFERENCES FOR PROMOTING OPEN-SOURCE SOFTWARE: A SOLUTION IN SEARCH OF A PROBLEMt David S. Evans* BernardJ. Reddy" Cite as: David S. Evans and Bernard J. Reddy, Government Preferencesfor Promoting Open-Source Software: A Solution in Search of a Problem, 9 MICH. TELECOMM. TECH. L. REV. 313 (2003), available at http://www.mttlr.org/volnine/evans.pdf PART I. INTRODUCTION .................................................................................. 315 PART II. SoFTwARE DESIGN AND INTELLECTUAL PROPERTY PROTECTION ........................................................................ 318 PART III. THE ECONOMICS OF COMMERCIAL SOFTWARE ............................. 324 A. Overview of the Commercial Software Business....................... 324 B . ProductionM ethod ..................................................................... 327 C. Commercial Business Model and Nature of Competition................................................................. 329 1. Performance of Commercial Software ............................... 331 2. Lessons from the Vertical Disintegration of the Com puter Industry ..................................................... 335 3. Sum m ary ...............................................................................337 PART IV. THE ECONOMICS OF GPL OPEN-SOURCE SoFTwARE ................. 337 A. InstitutionalArrangements ......................................................... 338 1. Free Software Foundation is the Ideological Heart of the M ovem ent ........................................................ 338 2. Copyleft and the Viral Aspect of the GPL Promote the Goals of the FSF ............................................. 339 B. Productionof Open-Source Software ........................................ 341 C. Incentives for Participatingin Open-Source Projects.............. 342 1. Why Individuals Work on Open-Source Software ............ 342 2. Business Models Based on Open Source ........................... 344 t © 2002 by David S. Evans and Bernard J. Reddy. All rights reserved. * 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. 314 Michigan Telecommunicationsand Technology Law Review [Vol. 9:313 D. The Performance of Open Source .............................................. 351 1. Successes and Failures of Open-Source Software ............. 352 2. Open-Source Projects under Development ........................ 354 E . Sum m ary ...................................................................................... 355 PART V. COMPARISONS OF PROPRIETARY AND OPEN-SOURCE SOFTWARE ................................................................... 356 A. Advantages and Disadvantagesof Each Approach .................. 356 1. O pen Source ......................................................................... 356 2. Proprietary Software ............................................................358 B. Open Source: Innovation and Imitation .................................... 359 C. The Future Evolution of Open Source without Government Favoritism................................................. 363 PART VI. GOVERNMENT INTERVENTIONS IN THE SoFrwARE MARKET TO ASSIST OPEN SOURCE ...................................................... 365 A. The Economic Approach to Government Intervention ............. 366 B. Governments Proposalsand Initiatives Concerning Open Source ............................................................ 371 1. Initiatives ............................................................................... 372 2. Rationales Offered ............................................................... 378 C. Economic Arguments for Helping Open Source ....................... 383 1. Claims about the Superiority of Open-Source Software ......................................................... 384 2. Arguments for Promoting Open Source ............................. 386 D. Releasing Software R&D Under the GPL................................. 390 PART VII. CONCLUSIONS ................................................................................393 Governments around the world are making or considering efforts to promote open- source software (typically produced by cooperatives of individuals) at the expense of pro- prietary software (generally sold by for-profit software developers). This articleexamines the economic basisfor 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 justiy such intervention in the software industry. The article concludes that the software industry has performed re- markably well over the past 20 years in the absence ofgovernment intervention. There is no evidence of any significant marketfailures in the provision of commercial software and no evidence that the establishment of policy preferences in favor of open-source soft- ware on the part of governments would increaseconsumer welfare. Spring 2003] Promoting Open-Source Software 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 developers).' 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 Member2 States "to promote software projects whose source text is made public., The German Bundestag is considering legislation that would require government agencies to use open source.' Former French Prime Minister Jospin created an agency whose mission will be to "encourage administrations to use open source software and open standards.' 4 The U.S. government has supported R&D efforts that create software that must be released under restrictive open-source licenses.' Leaders of the open-source movement are naturally spurring these efforts.6 But so are academics such as Professor Lawrence Lessig of Stanford Law School.7 1. 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. 2. 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 resolution], at http://www.europarl.eu.int/ meetdocs/commnittees/itre/20020325/449496EN.pdf (last visited May 17, 2003). 3. 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. 4. Law on the Establishment of the Agency for Information Technology and Communica- tion 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-nor.ow?numjo=PRMX0105055D (last visited May 17, 2003). 5. See, e.g., Thomas Sterling, Beowulf Linux Clusters, at http://beowulf.gsfc.nasa.gov/ tronl.html (last visited May 17, 2003). 6. 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/200l-07-20-FSF-India.html; Press Release, Free Soft- ware Foundation, Richard M. Stallman Addresses Brazilian Congress on Free Software and the Ethics of Copyright and Patents (Mar. 20, 2001) [hereinafter Stallman
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