Nov. 23 (Bloomberg) -- Oracle Corp.’s planned $7.4 billion purchase of Sun Microsystems Inc. may be blocked by European Union regulators because of concerns that Oracle might be able to eliminate Sun’s MySQL database product as a competitor, according to an EU document.

Oracle would have “total control” of MySQL’s source code and intellectual property, the European Commission said in a document obtained by Bloomberg News. Oracle could change the terms of MySQL’s open-source licenses, restricting the ability of other companies to develop competing products.

“Oracle has strong incentives to adopt a commercial and technology strategy for MySQL which prevents it from cannibalizing Oracle’s significant revenues from proprietary offerings,” the Brussels-based commission said in the so-called statement of objections.

The Sun takeover would move Oracle, the world’s second- largest software maker, into the market for server and storage computers, pitting the company against International Business Machines Corp. and Hewlett-Packard Co. Oracle Chief Executive Officer Larry Ellison said in September that the commission’s delay in approving the deal is costing Sun $100 million a month.

The commission, which sent the complaint to Redwood City, California-based Oracle Nov. 9, outlined in the document its preliminary conclusions on why the deal will harm competition in the 27-nation EU. The U.S. Justice Department gave antitrust approval to the acquisition in August.

‘Profound Misunderstanding’

Gaye Hudson, an Oracle spokeswoman in the U.K., declined to comment in an e-mail. Jonathan Todd, a commission spokesman, also declined to comment.

“The commission’s statement of objections reveals a profound misunderstanding of both database competition and open- source dynamics,” Oracle said in a statement Nov. 9. The products don’t “reduce competition in the slightest.”

The EU on Nov. 20 extended its deadline to rule in the case by six working days to Jan. 27 after Oracle asked for more time to address antitrust issues. EU Competition Commissioner Neelie Kroes said Nov. 11 that she is “optimistic” a settlement can be reached.

Oracle told the commission that MySQL isn’t a competitive constraint because of the technical differences between its databases, which are designed for large companies’ back offices, while MySQL, which is based on freely distributed code, is an easy-to-use program for Web site developers, according to the document. Oracle’s main competitors are Microsoft Corp., IBM and Sybase Inc., the company told the commission.

Potential Competitor

Dennis Oswell, a competition lawyer with Oswell & Vahida in Brussels, said the commission will have a hard time proving that the acquisition of MySQL “will lead to the elimination of a genuine potential competitor.”

“To be a potential competitor you have to be able to enter the same market as Oracle in a very short period of time and at reasonable cost,” he said. “If Oracle and MySQL were currently in the same market, you’d see some switching” by customers.

In the document, the commission said it’s not convinced by Oracle’s arguments.

“MySQL is the most vigorous open-source competitor,” the regulator said in a 155-page statement of objections, which outlines the EU’s case against the merger. “In the overall market for databases it is among the four top database vendors. It is a leading and important database vendor, which exerts a significant competitive constraint on Oracle and other proprietary database vendors like Microsoft and IBM.”

Market Share

MySQL’s market share is estimated by IDC, a research firm in Framingham, Massachusetts, at 0.2 percent with $40 million in revenue in 2008.

The commission said MySQL, with about 60,000 daily downloads, is the “most deployed” open-source database and its “competitive significance is much greater than its very small market share based on revenue would suggest.”

Acquiring MySQL is an important way for it to compete with Microsoft for small and medium-sized business customers, Oracle told the commission, according to the document.

The commission also questioned claims that companies have the ability to “fork” MySQL or take a copy of its source code and developing the product independently.

“The mere copying of software source code doesn’t translate into a successful business, let alone into a business that can exercise a competitive constraint on a worldwide market leader such as Oracle,” the EU said in the document.

To contact the reporter on this story: Matthew Newman in Brussels at mnewman6@bloomberg.net

Last Updated: November 23, 2009 13:23 EST