Oracle, the US database systems giant on Monday confirmed that it had received an official objection from European Union (EU) competition authorities to its proposed $7.4bn acquisition of Sun Microsystems - - a producer of the widely used Java software. US antitrust authorities support Oracle.

Last September, the European Commission opened an in-depth investigation of the deal and said its initial market investigation indicated that the proposed acquisition would raise serious doubts as to its compatibility with the Single Market because of competition concerns on the market for databases. The Commission has until  19 January 19, 2010, to take a final decision.

Competition Commissioner Neelie Kroes said:“The Commission has to examine very carefully the effects on competition in Europe when the world's leading proprietary database company proposes to take over the world's leading open source database company. In particular, the Commission has an obligation to ensure that customers would not face reduced choice or higher prices as a result of this takeover. Databases are a key element of company IT systems. In the current economic context, all companies are looking for cost-effective IT solutions, and systems based on open-source software are increasingly emerging as viable alternatives to proprietary solutions. The Commission has to ensure that such alternatives would continue to be available”.

Oracle said on Monday that its acquisition of Sun is essential for competition in the high end server market, for revitalizing Sparc and Solaris and for strengthening the Java development platform. The transaction does not threaten to reduce competition in the slightest, including in the database market.

"The Commission's Statement of Objections reveals a profound misunderstanding of both database competition and open source dynamics. It is well understood by those knowledgeable about open source software that because MySQL is open source, it cannot be controlled by anyone. That is the whole point of open source," Oracle said.

Oracle said the database market is intensely competitive with at least eight strong players, including IBM, Microsoft, Sybase and three distinct open source vendors. Oracle and MySQL are very different database products. There is no basis in European law for objecting to a merger of two among eight firms selling differentiated products. Mergers like this occur regularly and have not been prohibited by United States or European regulators in decades.

It said the US Department of Justice carefully reviewed the proposed acquisition during the normal Hart-Scott-Rodino review and considered it again when the European Commission initiated a second phase review. On both occasions the Justice Department came to the conclusion that there is nothing anticompetitive about the deal, including specifically Oracle’s acquisition of the MySQL database product. The US Department of Justice approved the acquisition without conditions and terminated the waiting period under the Hart-Scott-Rodino Act on August 20, 2009.

Oracle said Sun’s customers universally support this merger and do not benefit from the continued uncertainty and delay. Oracle plans to vigorously oppose the Commission’s Statement of Objections as the evidence against the Commission’s position is overwhelming. "Given the lack of any credible theory or evidence of competitive harm, we are confident we will ultimately obtain unconditional clearance of the transaction," the company said.

The proposed transaction would bring 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 said in September, that its preliminary market investigation has shown that the Oracle databases and Sun's MySQL compete directly in many sectors of the database market and that MySQL is widely expected to represent a greater competitive constraint as it becomes increasingly functional. The Commission's investigation had also shown that the open source nature of Sun's MySQL might not eliminate fully the potential for anti-competitive effects.

The EU created waves in 2001, when it rejected General Electric Co.'s planned $42 billion acquisition of Honeywell International.

On Monday, in an unusual move, Deputy Assistant Attorney General Molly Boast of the US Department of Justice’s Antitrust Division said in a statement: "After conducting a careful investigation of the proposed transaction between Oracle and Sun, the Department’s Antitrust Division concluded that the merger is unlikely to be anticompetitive. This conclusion was based on the particular facts of the transaction and the Division’s prior investigations in the relevant industries. The investigation included gathering statements from a variety of industry participants and a review of the parties’ internal business documents. At this point in its process, it appears that the EC holds a different view. We remain hopeful that the parties and the EC will reach a speedy resolution that benefits consumers in the Commission’s jurisdiction.

"Several factors led the Division to conclude that the proposed transaction is unlikely to be anticompetitive. There are many open-source and proprietary database competitors. The Division concluded, based on the specific facts at issue in the transaction, that consumer harm is unlikely because customers would continue to have choices from a variety of well established and widely accepted database products. The Department also concluded that there is a large community of developers and users of Sun’s open source database with significant expertise in maintaining and improving the software, and who could support a derivative version of it.

"The Department and the European Commission have a strong and positive relationship on competition policy matters. The two competition authorities have enjoyed close and cooperative relations. The Antitrust Division will continue to work constructively with the EC and competition authorities in other jurisdictions to preserve sound antitrust enforcement policies that benefit consumers around the world."