Oracle/Sun/MySQL Frequently Answered Questions Florian Mueller (Public Policy Strategist) florian.mueller@live.

com - version 1.0 / 12 November 2009 -

Why is the European Commission concerned about Oracle's proposed acquisition of MySQL as part of Sun? In its 3 September 2009 press release announcing an in-depth investigation into the proposed takeover of Sun Microsystems by Oracle Corp., the Commission explained that MySQL, an open source database, has over time become increasingly functional and, therefore, increasingly exerted a competitive restraint on Oracle in different segments of the relational database market, including the high-end enterprise aplication segment. The Commission wants to ensure that the acquisition would neither result in less customer choice (if Oracle limited or discontinued MySQL's further development) nor in higher prices, given Oracle's track record of steadily increasing database prices. Databases are a key foundation of the entire knowledge-based economy. Please note that regulators in other jurisdictions are also concerned. Oracle felt forced to withdraw its antitrust application in Russia in late October. Investigations are also ongoing in at least China and Switzerland. How can the European Commission achieve those objectives? By issuing a Statement of Objections (SO) on 9 November 2009, and in its explanatory press conferences on 10 and 11 November 2009, the Commission has reinforced its position and demonstrated its determination not to clear the transaction unless Oracle offers commitments suitable to resolving antitrust concerns. The SO was an important step toward prohiting the takeover (for which 19 January 2010 would be the current deadline) if necessary. The only proposed remedy through which Oracle could ensure that MySQL continues to be a significant competitive force in the database would be a commitment to divest all MySQL assets to a suitable third party which would continue to derive revenues from the relevant intellectual property rights and fund further development without strategic conflicts of interest. Could Oracle resolve antitrust concerns by other means than a divestiture, such as licensingbased remedies? As a general rule there is a preference for clean structural remedies rather than behavioural remedies such as licensing which are difficult to devise and require constant monitoring. In this specific case, most licensing-related commitments on Oracle's part would be entirely, or almost entirely, ineffectual. Only very far-reaching commitments could have any effect, and even those would not achieve the objective of sustaining MySQL as a major force in the market.

- page 1 of 3 -

With or without possible licensing-related commitments on Oracle's part, wouldn't it be possible to take MySQL's code on open source licensing terms and "fork" it? If MySQL could be forked easily, neither would Sun have paid $1 billion for the MySQL assets in the first place nor would Oracle now jeopardize the entire transaction, including its intended ownership of Java, in an attempt to acquire MySQL's intellectual property rights. MySQL has historically been a company rather than community project. It is a product developed by a company with a significant number of highly qualified, full-time developers on its staff, and it will only continue to thrive in such a setting. Even Richard Stallman, the founder of the free and open source software movement, explained in an open letter to the European Commission that the MySQL software depends on the MySQL business. Community contributions to MySQL's success mostly relate to word-of-mouth and quality assurance. Forking would be legally but not commercially viable. Under the terms of the GPL (GNU General Public License), the license under which MySQL has been released so far, any derivative works based on its code would have to be released under the GPL as well or otherwise could not be deployed/distributed. The largest part of MySQL-related revenues can only be generated by the owner of the intellectual property rights. A fork would not have the revenue base to fund further development anywhere near the required level. Moreover, forks need a new brand identity. MySQL is one of the most well-known trade marks in the worldwide software industry. A MySQL fork would be unlikely to achieve similar popularity and ubiquity in the foreseeable future, and even if it happened, it would take many years. Oracle claims that MySQL is primarily used for web applications and, therefore, does not compete with Oracle's flagship product. Is this true? No. MySQL, like Oracle 11g, is a general-purpose database. It does not generate webpages; it stores and manages data. It happened to have a strength/weaknesses profile early on (especially in the years after its initial release in 1996) that made it very popular among web developers, particularly in tandem with Linux. Over time it has become increasingly functional. Transactional capabilities became available in 2001 and a series of typical enterprise-level features form part of MySQL's 5.x version tree (different versions released from 2005 to 2009). MySQL is not only used for web purposes but also for enterprise resource planning, customer relationship management, accounting, banking and other typical enterprise applications. In recent years, its primary competitor in the enterprise market has been Oracle. MySQL continues to be popular on the web and also for lower-end purposes by virtue of its open source nature: users in those areas do not have to pay for the many higher-level features it offers. Oracle claims that MySQL primarily competes with Microsoft SQL Server. Is this true? No. Oracle makes this incorrect claim to falsely deny the competitive impact MySQL has on its own business. Microsoft SQL Server is exclusively available for the Windows platform, while Oracle 11g and MySQL are cross-platform databases with most of their revenues being generated in connection with Linux.

- page 2 of 3 -

It is also obvious that Sun would not have paid $1 billion for a company primarily competing on the Windows platform. On Windows, Microsoft SQL Server Express Edition is a very popular and functional database that is available free of charge. MySQL's creator and founder, Michael 'Monty' Widenius, told in an interview with ThomsonReuters (published in November 2009) that "there is very little money to be made on the Windows side for MySQL." Oracle claims that MySQL's market share is small. Why would there be antitrust concerns? Market share can be measured in many ways. Oracle chooses to focus on revenues rather than number of users in an attempt to downplay the significance of MySQL. MySQL's open source nature and the aggressive pricing of related services and licenses are the reason why MySQL's relevance in the market is hugely greater than its actual revenues (which are already sizeable in their own right) suggest. There is strong evidence for direct competition between MySQL and Oracle in the high-end segment, and from an antitrust point of view, MySQL's proven trajectory of becoming increasingly functional and competitive must also be taken into account. If Oracle were to be required and to accept to divest MySQL, who would be the potential buyer(s)? Given MySQL's ubiquity, technological strength, revenue base and proven ability to "bootstrap" (finance growth with its own cash flow as opposed to depending on outside investments), there can be no doubt that there would be strong interest from different parties in acquiring these assets. Considering that open source business models and the related marketing efforts (which always has to take into account the specific characteristics of the open source community) are in some ways different from the traditional software industry, and furthermore considering synergy effects with other open source technologies, a major commercial Linux vendor such as Novell would presumably be particularly well-equipped to take MySQL to the next level in technical and commercial terms. How can the Commission threaten to block this major deal merely on the basis of concerns over MySQL, which (according to some people) represents a relatively minor part of the transaction? First, it would appear that Oracle does not view MySQL as a minor part of the deal given that it is prepared to put the entire takeover at risk in order to secure total control of its database competitor. More fundamentally, the Commission can only rule on the transaction which is put before it and is obliged to block a deal if it would foreclose competition in any market. Therefore, if Oracle refuses to offer remedies, the Commission may ultimately have no choice but to prohibit the consummation of the acquisition of Sun as a whole.

- page 3 of 3 -