Read Against Intellectual Monopoly for Free Online Page B

On the contrary, it is the everrepeating pattern in innovating and growing industries. Later we will learn
about an identical episode, which took place in England about 150 years earlier: the development of the Cornish steam power engine, without which
the Industrial Revolution would have been a shadow of what it turned out
to be. Too bad we do not have time to write an entire encyclopedia of competitive innovations. We could tell of similar wonders in the American automobile industry, the Swiss and German chemical industries, the worldwide
oxygen steelmaking industries, the Italian textile and fashion industries, the
Swiss watch industry, the wine farms of Europe and California, the Czech
and Venetian glass industries, and so on and so forth.8

"Pirating" Software
    The idea that a software producer - say, Microsoft - could earn a profit
without copyright protection always puzzles people. Without copyright
protection, wouldn't "pirates" step in and sell cheaper imitations, putting
Microsoft out of business? Although this is an interesting theory of how
markets work, it is not one supported by the facts.
    Again, we turn to open-source software and the Linux computer operating system. Because it is open source, Linux may be resold commercially,
but only if the source code is made freely available, including any modifications made to the original program. For example, Red Hat is a company
that sold a modified and customized Linux system with easy installation
and many other useful features. Although Ret Hat obtains the underlying
Linux system for free, the customization and testing that Red Hat conducts
is costly. Using prices quoted on the Internet on July 10, 2002, Red Hat
charged $59.95 for a package containing its system. Because it is based on
the underlying Linux system, Red Hat must also make available its code to
competitors. As a result, anyone who wishes to can sell his or her own "Red
Hat" system. And, in fact, there were at least two companies, HCI Design
and Linux Emporium, that did exactly this. For example, on July 10, 2002,
HCI Design offered for sale Red Hat Linux 7.2 for a price of $16, about onethird of the price charged by Red Hat. The Web site Linuxemporium.co.uk
offered a similar deal.
    So how does Red Hat stay in business? For starters, it turns out that
Red Hat sold many more $59.95 packages than HCI Design and Linux
Emporium sold $16 packages. Moreover, Red Hat is a large, well-known
company, while no one has ever heard of the other two, nor does it appear
that they ever represented a dangerous market threat to Red Hat.9 How
could this be? Or more accurately, how could this not be? Have you ever
used software that worked properly? If you had a problem with software
you bought, and had to call the seller for advice, who would you prefer to
call: the people who wrote the program or the people who copied it?

    The story is not over yet; please bear with us. Taking years in writing a
book chapter is not proof of high productivity, but there is a silver lining.
On December 24, 2006, we went back to the Internet to see what happened
to these three companies. All three of them still exist, and many other
have joined the game. After years of having all its innovations mercilessly
"pirated," Red Hat is still the market leader, has a worldwide web of offices,
sells lots of Linux-based software products while also giving away lots of
others for free, and its revenues are soaring. HCI Design, in spite of the
advantage of being a legal "pirate," does not seem to have done very well; it
is still there, but it is selling very few products and all Linux-based products
are now off its shelves. Linux Emporium had a more interesting life. After
either changing its name to or having been acquired by ChyGwyn, it is
back in business under the original name and it is thriving. Indeed, it has
pioneered an entire new line of business: it sells at positive prices software
that is