1. Simonetta Vezzoso, Trento University Open Source and Merger Policy: Insights from the EU Oracle/Sun Decision Simonetta Vezzoso, Trento University Melbourne May 29-31.2011 3rd Annual Conference on Innovation and Communications Law

2. IP/COMPETITION LAW INTERFACE Art 101 Treaty on the Functioning of the European Union (TFEU) : R&D/patent pools/ IP licensing practices Art. 102 TFEU: abuse of dominant position cases - EU Micosoft case - EU Rambus case etc. EU Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings: not yet well explored

3. IP AND MERGER CONTROL: SOME BASICS IPR as a legal barrier to entry: implications on the merger assessment IPR in the remedy phase (assignment or licensing) IPR related transaction (eg. acquisition of IPR) can be considered a concentration if market turnover can be attributed to those rights merger control only concerns « external growth », eg not IP on a new product acquired by internal R&D activities IPRs transfer rarely isolated (also tangible assets involved)

4. IP/MERGER CONTROL: SUBSTANTIVE ASSESSMENT « Does the merger significantly impede effective competition in particular as a result of the creation or strengthening of a dominant position? »: SIEC Test » Competition: price competition and, to a much minor extent, competition by innovation art. 2(1) (b) Merger Regulation: in making the appraisal the Commission should take into accont «… the development of technical and economic progress»

5. MERGER CONTROL’S TOOLKIT identify the markets affected - products/services - technology market (IMS/Health case: even if the IPR doesn’t license it) - innovation markets (R&D) establish market share establish concentration level (Herfindahl Hirschmann Index eg) SIEC assessment - IPRs as such rarely confer a dominant position (but: Jackson Pollock case) - IPRs can intensify competition : incentives to do things « differently » (exclusion of substitutes) --- OECD Study (1989) 27% of the cases IP licensor faced no alternative supplier 34%: 2 to 5 alternatives 10%: 5 to 10 29%: 10 or more

6. SIEC TEST A significant impediment to effective competition may consist in coordinated and non-coordinated (or unilateral) effects Unilateral effects: merged firm is profitably able to exercise market power on its own Coordinated effects can arise when firms remaining in the market after the merger realize that because of their reciprocal interdependency they are much better off if they coordinate to limit their rivalry despite the absence of single or collective market dominance, concentrations involving the elimination of important competitive constraints may, under certain circumstances, result in a significant impediment to effective competition

7. ORACLE/SUN MERGER Oracle, a US database and application software company, of Sun Microsystems, a US hardware and software vendor. Oracle’s merger with Sun for a total value of approximately USD 7,400 million was approved by Sun’s stockholders on July 16, 2009 and was subsequently notified both to the EU Commission and to the US Department of Justice’s Antitrust Division. While the latter concluded on August 20, 2009 that the merger was unlikely to be anticompetitive and terminated the waiting period under the Hart-Scott-Rodino Act, the Commission issued a Statement of Objections [1] in early November 2009, following a phase two investigation. [2] After Oracle made public commitments [1] [2]Oracle, a US database and application software company, of Sun Microsystems, a US hardware and software vendor. Oracle’s merger with Sun for a total value of approximately USD 7,400 million was approved by Sun’s stockholders on July 16, 2009 and was subsequently notified both to the EU Commission and to the US Department of Justice’s Antitrust Division. While the latter concluded on August 20, 2009 that the merger was unlikely to be anticompetitive and terminated the waiting period under the Hart-Scott-Rodino Act, the Commission issued a Statement of Objections [1] in early November 2009, following a phase two investigation. [2] After Oracle made public commitments [1] [2] Oracle, a US database and application software company, of Sun Microsystems, a US hardware and software vendor. Oracle’s merger with Sun for a total value of approximately USD 7,400 million was approved by Sun’s stockholders on July 16, 2009 and was subsequently notified both to the EU Commission and to the US Department of Justice’s Antitrust Division. While the latter concluded on August 20, 2009 that the merger was unlikely to be anticompetitive and terminated the waiting period under the Hart-Scott-Rodino Act, the Commission issued a Statement of Objections [1] in early November 2009, following a phase two investigation. [2] After Oracle made public commitments concerning its future behaviour, the transaction was unconditionally approved by the European Commission [1] [2] Merging undertakings: - Oracle (US database and application software company) - Sun Microsystems, a US hardware and software vendor. total value of approximately: USD 7,400 million approved by Sun’s stockholders on July 16, 2009 notified both to the EU Commission and to the US DOJ’sAntitrust Division US DOJ: August 20, 2009 : waiting period terminated the Commission issued a Statement of Objections in early November 2009, Oracle made public commitments: transaction was unconditionally approved

8. Statement of Objections: potential problems especially as regards the future workings of competition on the database market (software making it possible to store, sort, and analyse data) Potential competition concerns would have stemmed from Oracle’s acquisition of an open source database business, MySQL (purchased in 2008/value: USD 1 billion) open source nature of MySQL had decidedly shaped the competition assessment of the merger under scrutiny COMPETITIVE CONCERNS

9. OPEN SOURCE: MYTHS AND REALITY CHECK decisive contribution to the computing industry’s remarkable growth and sustained innovation pace (eg cloud computing technologies) despite being non-proprietary, is predominantly commercial growing intersection and cross-contamination between open source and proprietary models

10. THE SIEC TEST IN THE CONTEXT OF THEORACLE/SUN CASE MySQL: most deployed open-source database worldwide, and the third one if taking proprietary databases into consideration However, MySQL’s market share based on revenues is comparatively much smaller (0-5 % range) Oracle is the largest and strongest proprietary database vendor (market share of over 40% in 2008) The database market is highly concentrated (Oracle, IBM and Microsoft : more than 80% of the market in terms of revenues Theory of harm, para.37 of the Horizontal Guidelines: some firms, despite having a relatively small market share, may be an important competitive force

11. SIEC AND MYSQL’S OPEN SOURCE NATURE MySQL: version 2 of the General Public Licence - if a product, which contains modified or unmodified open source code that had been licensed under GPLv2 is commercialised, then the code of the entire, commercialised product needs to be disclosed (so called « viral effect »). « dual licensing model »: MySQL offered both with an open source licence for free and with a commercial proprietary licence MySQL’s nature essential: (a) in determining whether MySQL constituted an “important competitive force”; (b) in order to assess Oracle’s ability and incentive to degrade or eliminate MySQL post-merger; (c) in order to appraise the likelihood of sufficient and timely replacement entry post merger; (d) in evaluating the adequacy of the public announcement made by Oracle

12. SELECTED HIGHLIGHTS MySQL was particularly attractive to users because its open source nature made it less vulnerable to hold-ups than closed source databases the open source nature of MySQL was crucial in understanding the product’s remarkable development in terms of the incremental addition of features and qualities. Its in-house developing resources aside, MySQL could leverage the contributions of a large “ecosystem” of third party developers to improve the code and report errors. Proprietary vendors cannot profit in the same way of external capabilities. MySQL’s vulnerability to Oracle’s strategies: open source nature could not effectively prevent Oracle from withholding sales of MySQL or from degrading it over time (Oracle’s public announcement necessary) Many barriers (in particular legal ones) could prevent “forking” (taking a copy of MySQL’s version available under GPL and developing it independently from the original source code)

13. COMMITMENTS (LARGELY NON BINDING !) to continue to make available and enhance MySQL code for at least five years under the GPL not to require customers to purchase support services from Oracle as a condition to obtaining a commercial licence to MySQL to increase spending on MySQL research and development compared to Sun’s funding in the most recent fiscal year preceding the closing of the transaction Etc.

14. CONCLUSION: A U TURN? End of the first phase investigation :“the open source nature of Sun's MySQL might not eliminate fully the potential for anti-competitive effects”. -viable open source database products should remain available to customers as alternatives to proprietary solutions (Neelie Kroes) merger cleared following Oracle’s largely not legally binding commitments Neelie Kroes now in charge of the Digital Agenda (“mixed” approach) “more economic approach” : difficult to explain the importance of preserving a sufficient level of diversity of offers (products, services) from which customers, be it intermediaries along the value chain or end-consumers, can choose

15. THANK YOU!

16. International Review of Intellectual Property and Competition Law, 2011, p. 344 ff.