The Commission opened an in-depth investigation under the EU Merger Regulation into the planned acquisition of US hardware and software vendor Sun Microsystems by Oracle Corporation, a US database and application software company in September 2009 (see our previous briefing on this). The Commission’s initial market investigation indicated that the proposed acquisition would raise serious competition concerns on the market for databases.
The proposed transaction was seen by the Commission as bringing together two major competitors in the market for databases. The database market is highly concentrated with the three main competitors of proprietary databases – Oracle, IBM and Microsoft – controlling approximately 85% of the market in terms of revenue. Oracle is the market leader in proprietary databases, while Sun's MySQL database product is the leading open source database.
The Commission had been engaged in discussions with Oracle regarding the maintenance of MySQL as an important competitive force in the database market after the deal. On 14 December 2009, Oracle announced a series of contractual undertakings to customers, developers and users of MySQL, concerning issues such as the continued release of future versions of MySQL under the General Public Licence open source licence.
Last month the Commission approved the proposed acquisition and concluded after a long running in-depth investigation that the transaction would not significantly impede effective competition in the European Economic Area (EEA) or any substantial part of it.
Although Sun’s share of the database market in terms of revenue is low, as users of MySQL can download and use the database for free, the Commission’s investigation confirmed MySQL’s position as the leading open source database. However, the Commission’s investigation focussed on the nature and extent of the competitive restraint that MySQL has on Oracle.
The Commission concluded that:
- Although MySQL competes in certain parts of the database market, it is not a close competitor to Oracle’s products in others, such as the high end segment.
- Investigations showed that another open source database, PostgreSQL, is considered by many database users as a credible alternative to MySQL.
- The ‘forks’ (branches of the MySQL code base) which are legally possible due to MySQL’s open source nature might also develop in future to exercise a competitive constraint on Oracle.
- The pledges made by Oracle in the form of undertakings to customers, developers and users of MySQL are likely to allow third parties to continue to develop storage engines to be integrated with MySQL and to extend its functionality.
- Oracle’s ability to deny competitors access to important IP rights would be limited by the Java Community Process (a participative process for developing and revising Java technology specifications) and so raise no competition concerns.
It is interesting to note that part of the Commission’s rationale for clearing the merger was based on the informal assurances given by Oracle to customers, developers and users of MySQL. This novel settlement (usually the Commission requires formal binding commitments and is sceptical of “behavioural” commitments to deal with concerns in merger cases) raises some interesting questions:
- How vigilant will the Commission be in monitoring compliance and exactly what standards are expected of Oracle?;
- What happens if third parties complain that Oracle is not meeting its obligations?
The Commission has suggested informally that if Oracle breaches its undertakings to customers, it will treat the clearance has having been granted on the basis of incorrect facts (a conclusion that would invalidate the clearance and raise all sorts of thorny procedural issues regarding the status of the merger under EU competition rules).