Have we just witnessed the Commission trusting markets?

Less than 3 months ago it looked as if a new GE/Honeywell upset was in the making in Brussels but as a result of a surprisingly sharp turn back, the Commission decided to unconditionally approve the merger of Sun and Oracle.

The merger has been subject to intense debate by computer geeks experts on numerous blogs leaving me only to say a few things about regulatory behaviour and the peculiarities of the European procedure.

The merger was approved by US competition watchdogs in August 2009 after concluding that it was unlikely to lead to anticompetitive effects. However, in Europe, after briefly looking at the transaction, the Commission decided to initiate a more thorough investigation, in course of which, a statement of objections (SO) was issued in early November. In the centre of the SO was an open-source database software, MySQL, a product of Sun. The Commission was worried about “Oracle’s ability and incentive to remove the constraint exerted by MySQL after the merger and the extent to which this constraint could, if necessary, be replaced by other actors on the database market”.

The Commission’s concerns however seemed rather implausible in a market that is so innovative that even the discontinuation of MySQL would not pose any threat to consumers, as being an open source system several forks have already been derived from MySQL in fear that Oracle would jeopardise the continuation of MySQL (this was the time I started following the case and started to wonder – once again – why is the Commission so reluctant to trust market mechanisms).

The fear of a clumsy regulatory intervention generated prompt reactions from the US. As a result of the SO – which Oracle was adamant to oppose by all means – the US DOJ issued a statement, and even more unprecedentedly, on 24 November 2009 members of the US Senate issued a lobbying letter, which was not short of blunt comments such as the one from Senator Hatch:

I have become increasingly concerned about the growing body of evidence that foreign regulatory agencies are unfairly using their review processes to impede the business of American corporations.

Within only 2 weeks of this letter, things have taken an unexpected turn. Just before a hearing of the parties concerned (including competitors of the to-be-created entity, and opponents of the transaction) EC Competition Commissioner Neelie Kroes told newspapers that she was optimistic about the merger. Following the Hearing, Oracle made a pledge to customers, users and developers of MySQL concerning issues such as “the continued release of future versions of MySQL under the GPL (General Public Licence) open source licence”. From the EC press release, it seems as though this non-binding pledge was deemed sufficient for the Commission to accept that the safety of consumers is guaranteed (at least to the extent that the Commission had been concerned about). This seems unlikely given past EC cases, where more concrete commitments were turned down given the uncertainty of their implementation. It looks more as if the Commission went on a wild goose chase and is now at least implicitly admitting to its mistakes, a mistake which has taken billions from the value of the merged company as a result of the long delay (consequently, it will be easier for Oracle to justify laying off half of Sun’s remaining employees, and to give good reason for cutting down on the development of MySQL, which the Commission had feared initially).

Whether this case – although resulted in the same outcome as across the Atlantic – will be subject to less critical analysis than GE/Honeywell, will probably depend on the policy the Commission will follow after Oracle/Sun. If the market – as predicted – corrects those effects of the merger, which the Commission had initially feared to be prone to harm consumers, then this case may strengthen the EC’s trust in market mechanisms and which may in the future make them more adept in avoiding undue market intervention.

Nevertheless, the story is far from over yet, as both Russia and China are threatening to block the merger (not a surprising move given both governments’ dependence on MySQL).


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