Politics and Law

The European Commission on Monday formally dug in its heels over Oracle's planned acquisition of Sun Microsystems, but Oracle accused the regulatory body of "profound misunderstanding" in a rebuttal that declared its intention to fight the opinion.

The regulatory body issued a statement of objections about the merger, according to a Securities and Exchange Commission filing from Sun Microsystems. The open-source MySQL database software is the sole issue of concern in the matter, Sun said in the filing.

"The Statement of Objections sets out the Commission's preliminary assessment regarding, and is limited to, the combination of Sun's open source MySQL database product with Oracle's enterprise database products and its potential negative effects on competition in the market for database products," Sun said in the filing.

Oracle, though, fired back immediately, saying the objection "reveals a profound misunderstanding of both database competition and open-source dynamics." And indicating that other technologies are in limbo during the European deliberations, Oracle said, "Oracle's 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."

Meanwhile, the U.S. Justice Department reiterated its stance that the acquisition isn't anticompetitive. But given the gulf between Oracle and EC perspectives and Oracle's unwillingness to spin the MySQL software group off, it appears the matter won't be resolved soon.

MySQL is open-source software, meaning anyone may see, modify, and distribute the human-readable source code that underlies the software package computers actually run. Oracle's core database product is proprietary, meaning they don't grant those freedoms. MySQL is used widely at Facebook and Google among other companies, and competes to some extent with Oracle's existing products, arguably indirectly by expanding into newer markets to which Oracle's software isn't as well-suited.

Oracle castigated the commission in its statement:

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.

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...

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 Justice Department, which is in Oracle's camp, detailed its reasoning in a statement from Deputy Assistant Attorney General Molly Boast of the Justice Department's Antitrust Division.

And though Boast pointed to the department's "strong and positive relationship on competition policy matters" with the EC, she also said, "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."

The Justice Department reasoned that there are other database packages available and that open-source projects can be forked by those who disagree with corporate sponsors' handling of the software.

"Several factors led the (Justice Department's antitrust) 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," Boast said. "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."

Europe is set to get a major overhaul of its telecommunications regulation, after the European Parliament and Council of Telecoms Ministers reached a compromise on the rights of Internet users.

The Telecoms Reform Package is a raft of new laws that tackle issues ranging from data-breach notification to faster number porting. Following an agreement reached on Wednesday night, the package will now become part of national legislation in every EU country, with a deadline of May 2011.

A sticking point in the package's progress had been a provision regarding "three strikes" laws targeting Internet users suspected of unlawful file-sharing of copyrighted material. But negotiations led to an "Internet freedom provision," which states that any measures taken by member states to limit Internet access or use must "respect the fundamental rights and freedoms of natural persons, as guaranteed by the European Convention for the Protection of Human Rights and Fundamental Freedoms and general principles of Community law."

Read more of "European 'internet freedom' law agreed at ZDNet UK.

Oracle is taking a hard line in dealing with European Union objections to its planned acquisition of Sun Microsystems, according to a Financial Times report Tuesday.

EU antitrust regulators are concerned that Oracle, which has a large business in proprietary software, won't be a good home for Sun's open-source MySQL database business. According to the report, Oracle is unyielding, offering no concessions to deal with the EU's concerns.

That stance could lead the regulators to issue a formal complaint objecting to the deal, and that move could occur within days, according unnamed sources in the story. Neither the EU or Oracle commented for the story.

MySQL's former chief executive, Marten Mickos, has urged the EU to approve the acquisition, but cofounder Monty Widenius has objected. Sun shareholders and the U.S. Justice Department have approved the deal.

European Union regulators want publishers and authors to weigh in on copyright issues with Google's book scanning and book search project, according to the Associated Press.

European Commission officials will meet with copyright holders on September 7 to discuss the search giant's $125 million proposed settlement with U.S. publishers and authors granting Google the right to digitize and publish books that are out of print but still protected by copyright law. The court overseeing the settlement has given authors a September 4 deadline to opt out individually if they don't not wish to participate. Google has negotiated many deals with some publishers for current works and is also digitizing public-domain works.

Critics complain that the deal, which is scheduled to be implemented in October, would effectively give Google a monopoly over books that are in copyright but out of print. Google argues that the agreement will make millions of books hidden on library shelves more accessible and give publishers and authors a new opportunity to profit from them.

Earlier this month, the U.S. Department of Justice said it was launching a formal investigation into the proposed settlement.

A Google spokesperson told CNET News that the company will be at the EC meeting.

"What's currently planned is a fact-finding exercise by the Commission--not an investigation--and we're looking forward to taking part," the spokesperson said in an e-mail. "We agree with European Commissioner, Viviane Reding, when she said, "We should create a modern set of European rules that encourage the digitization of books."

Update 4:50 p.m. PDT: The Wall Street Journal reported that the U.S. House of Representatives' Judiciary Committee also is considering a look at the matter, citing unknown people with whom the committee discussed its plans and a Google spokesman quoted as saying, "there's interest in having a hearing to explore the settlement."

There's no question that the European Commission's $1.45 billion antitrust fine against Intel is a lot of money. But don't expect Wednesday's antitrust enforcement move to radically change what you see when it's time to buy your next PC.

Antitrust actions can have a dramatic effect when a decision breaks a company into pieces, but the biggest factors in the rivalry between Intel and AMD--and increasingly Nvidia, too--is technology. So while AMD can be pleased with the European Commission's conclusion, it's got bigger worries.

AMD investors cheered the European Commission's antitrust fine against Intel on Wednesday.

(Credit: Google)

"They have a marketing problem. They need to increase size of their voice," said Technology Business Research analyst John Spooner. "And they've got to run faster than Intel. They've got to have products that really are better and provide more value."

AMD has been tirelessly agitating for antitrust actions against its larger rival, and it's made some headway. Japan and South Korea have come down against Intel, and the Federal Trade Commission in the United States is involved in its own Intel investigation--not its first. AMD also has its own private antitrust suit under way in Delaware.

But when it comes to taking on Intel, a far bigger factor has been technology--not just processor designs, but also manufacturing skill and capacity that means chips can be priced competitively while still being profitable.

Market share changes
Indeed, AMD made its biggest recent inroads against Intel when AMD's Opteron and Athlon processors could outgun Intel's Xeon and Pentium models, which used an outdated architecture. But Intel reclaimed that share once it modernized its designs at the same time AMD stumbled with its own manufacturing problems.

AMD CEO Dirk Meyer

(Credit: AMD)

AMD's troubles continued into 2008, when it installed Dirk Meyer as the new CEO and undertook a plan to spin off its manufacturing business.

But Wednesday's decision gave AMD a new cause for optimism, including the hope it will materially improve sales.

"We are hopeful that it will. When we have products people want to buy we won't be in position that's artificially constrained by payments competitors are making to exclude us," said Harry Wolin, AMD's senior vice president of legal affairs. He did add, though, that technology and business practices remain important: "We still have to deliver fine products to our customers and treat our customers and partners well. We have to manufacture products with our partners."

Antitrust actions can change behavior, to be sure. Microsoft was largely unscathed by the U.S. Justice Department's antitrust suit that began in the 1990s. But its legacy arguably lives on: the company is exercising some self-restraint when it comes to how strongly it promotes its online services through dominant widely used products such as Windows and Internet Explorer, and it's not because Microsoft doesn't fiercely want a stronger online presence.

But in a conference call with reporters, Intel Chief Executive Paul Otellini argued that the overall market dynamic isn't changing: technology still is king when computer makers decide whether to buy AMD or Intel chips.

"Most customers buy from both suppliers today. Most customers buy more or less from each supplier depending on the quality of the product, the competitiveness of the product, and the pricing...that dynamic hasn't changed in my career at Intel, which is 35 years. I don't expect it to change," Otellini said. "I don't think a customer is going to put him or herself at a disadvantage by buying an inferior or more costly products, just to try to walk a line that may be artificial."

Intel CEO Paul Otellini

(Credit: Intel)

Antitrust headaches
The European Commission's Wednesday conclusions and fine certainly didn't make life any easier for Intel's sales force, though. It concluded that Intel used partially or completely hidden rebates to ensure computer makers would use Intel chips exclusively or nearly so. It also concluded Intel paid computer makers to cancel or delay the introduction of products using rival chips.

"My experience with salespeople is they'll say anything to get a sale. Intel now has to put some constraints on sales reps that would not be there if they had less than 70 percent market share in the European Union," said Gartner analyst Martin Reynolds. But that won't be enough to hobble Intel. "Intel's biggest challenge is not getting rid of competition, it's making sure of market growth."

The European Commission's move could further other actions against Intel, too, Reynolds said.

AMD's private antitrust case also alleges Intel rebates conditioned on exclusivity or near exclusivity and Intel payments conditioned on delaying AMD-based products, Wolin said--and any settlement awards or damages that Intel might end up paying in that case would go to AMD, not wronged taxpayers. That case is scheduled to go to trial in March 2010.

Though AMD's Wolin wouldn't comment on it, the Justice Department's new antitrust leader, Christine Varney, promised tougher enforcement of antitrust regulations, too.

Intel strongly denied any wrongdoing and is appealing the European Commission ruling. Otellini said the EU wouldn't accept some contrary evidence and suggested that its lack of written proof was lack of evidence, not of Intel operating in secret.

Overall, though, just as Intel's successes won't be erased by the fine and ruling, AMD's problems won't be fixed by it. The lawyers may be paid well, but engineers still are at the heart of the microprocessor market.

The U.K. government is considering the mass surveillance and retention of all user communications on social-networking sites, including Facebook, MySpace, and Bebo.

Vernon Coaker the U.K. Home Office security minister, on Monday said the EU Data Retention Directive, under which Internet service providers must store communications data for 12 months, does not go far enough. Communications such as those on social-networking sites and via instant-messaging services could also be monitored, he said.

"Social-networking sites such as MySpace or Bebo are not covered by the directive," said Coaker, speaking at a meeting of the House of Commons Fourth Delegated Legislation Committee. "That is one reason why the government (is) looking at what we should do about the Intercept(ion) Modernisation Programme, because there are certain aspects of communications which are not covered by the directive."

Under the EU Data Retention Directive, from March 15, 2009, all U.K. ISPs are required to store customer traffic data for a year. The Interception Modernisation Programme, or IMP, is a government proposal, introduced last year, for legislation to use mass monitoring of traffic data as an antiterrorism tool.

The IMP has two objectives: that the government use deep-packet inspection to monitor the Web communications of all U.K. citizens; and that all of the traffic data relating to those communications are stored in a centralized government database.

The U.K. government has previously said communications interception is "vital" and has hinted that social-networking sites may be put under surveillance. And responding to a question from Liberal Democrat Parliament member Tom Brake, Coaker said all traffic data on social-networking sites and through instant-messaging services may be harvested and stored.

"The honorable member for Carshalton and Wallington will also know the controversy that currently surrounds the Intercept(ion) Modernisation Programme," Coaker said. "I look forward to his support when we present (IMP) proposals, which may include requiring the retention of data on Facebook, Bebo, MySpace, and all other similar sites."

Deep-packet inspection, the second strand of the IMP, involves intercepting and examining the contents of all data packets that flow over a network. In Monday's meeting, Coaker said the government still intends to have a consultation on whether to inspect and then store all Internet traffic data in a centralized government database.

"What is the point of having a consultation if, as the honorable gentleman implies, the government (has) already made up (its) mind to have a central database?" Coaker asked. "We have not made up our mind. We have said we will consult on a variety of options."

Opposition to the government's IMP proposal has been fierce. Cambridge University computer security expert Richard Clayton told ZDNet UK on Wednesday that the government proposal to monitor social-networking traffic was "extremely intrusive."

"The question is whether it's necessary or proportionate, and the short answer is no, it doesn't look that way," said Clayton. "If the government wants to make us safer, having a few more police on the electronic beat would be a good idea."

Clayton said the problem for the government is that the Data Retention Directive applies only to data held by Internet service providers, but that a large number of people don't use ISPs' systems to communicate, instead using online services such as Web mail and social-networking sites. Servers may be located in different jurisdictions, Clayton said, and data retention times may be short.

"The government wants to collect all of this data on everybody, just in case," Clayton said. "Suppose you use (an e-mail service based in Pakistan), and you blow up the Houses of Parliament. The government would have to persuade the Pakistani authorities to turn over the logs, which may then turn out only to have been retained for three days."

However, Clayton believes that the cost of harvesting this information, which would involve all U.K. Internet infrastructure providers and ISPs having "black boxes" to monitor data, would be prohibitively expensive. Clayton said taxpayers' money would be better spent on the police, who could target investigations to those they suspect of criminal activity, rather than on performing blanket surveillance of everybody.

"To deploy deep-packet inspection equipment isn't cheap--the word 'billion' is appropriate," Clayton said. "It took the Home Office the best part of a year to find 3 million pounds for the Police e-Crime Unit. That's what is wrong with this picture."

Web inventor Sir Tim Berners-Lee also opposes the use of deep-packet inspection to inspect people's data. Berners-Lee told ZDNet UK last week that the Internet should not be "snooped" upon.

"If (third parties) are using the data for political ends or commercial interest, there we have to draw the line," Berners-Lee said. "There's a gap between running a successful Internet service and looking inside data packets."

Tom Espiner of ZDNet UK reported from London.

Eurojust, an EU agency that coordinates judicial cooperation across member states, has significantly altered a statement in which it said criminals were using Skype to avoid detection by the authorities.

One week ago, Eurojust announced it planned to "play a key role in the coordination and cooperation of the investigations on the use of internet telephony systems (VoIP), such as Skype." The agency said its role would be to smooth out the technical and judicial obstacles to the interception of Internet telephony systems, taking into account the various data protection rules and civil rights. Eurojust also said it had become involved at the request of the Italian anti-mafia directorate.

"Skype's encryption system is a secret which the company refuses to share with the authorities," Eurojust's statement of last Friday read. "Investigators have become increasingly reliant on wiretaps in recent years. Customs and tax police in Milan have highlighted the Skype issue. They overheard a suspected cocaine trafficker telling an accomplice to switch to Skype in order to get details of a 2kg drug consignment."

Skype reacted strongly to that statement at the time, saying it remained "interested in working with Eurojust despite the fact that they chose not to contact us before issuing this inaccurate report".

On Wednesday, Eurojust issued an update to its original statement, which was entitled "Eurojust coordinates Internet telephony investigations." The new statement, entitled "Eurojust will be requested to coordinate Internet telephony investigations," makes it clear that the anti-mafia directorate's request for judicial coordination has not yet been made formally.

The Internet telephony-tapping probe is expected to be officially introduced at Eurojust "in the coming weeks or months," a spokesperson for the agency told ZDNet UK on Friday.

In addition, the revised statement made it clear for the first time that the initial meetings between Eurojust and the Italian judicial authorities had taken place in September 2006, and that Skype itself had been present at those discussions.

"Representatives from the company Skype S.A. were invited and present at this meeting," the revised statement reads. "There was a positive message from the Skype representatives during the meeting, showing their commitment to cooperate with the law enforcement authorities in the fight against serious, cross-border organized crime."

In the new statement, references to Skype's alleged refusal to share details of its encryption system have been excised.

Skype has welcomed the revision of the statement. "We are pleased that Eurojust has clarified their previous statement and has recognized our commitment to cooperate with law enforcement authorities, which Skype does as much as is legally and technically possible," it said in a statement on Thursday. "Skype looks forward to working more with Eurojust in the future."

Speaking to ZDNet UK, Eurojust's spokesperson said the original statement had not targeted Skype in particular. "We didn't only speak about Skype; we used Skype as the most known Internet telephony company," the spokesperson said. "There are others--Truphone, instant messaging, and so on."

Asked about the original statement's specific references to Skype and its encryption systems, the spokesperson said: "The first information (was included) as background based on information we got from a police officer in Milan."

ZDNet UK asked whether the removal of the references to Skype meant they had been incorrect, but Eurojust's spokesperson refused to comment.

While European regulators are showing a continued interest in regulating Microsoft, the Obama administration may have its sights set elsewhere.

In a speech in June, the woman nominated to be the new administration's antitrust chief said that Google, not Microsoft, is the big competitive worry.

"For me, Microsoft is so last century. They are not the problem," Christine Varney said at a June 19 panel, according to Bloomberg News, which unearthed the comments this week. In the same speech, Varney said that Google poses a threat because it already "has acquired a monopoly in Internet online advertising."

Obviously, those comments were made long before Obama's victory and her nomination, so it's not exactly administration policy. That said, it seems unlikely that Obama would have picked her if he was looking for someone to go after Redmond.

Varney, who has been working as a partner at the law firm Hogan & Hartson, did not return a call from Bloomberg News seeking comment. White House spokesman Ben LaBolt told Bloomberg News that the president nominated Varney "to vigorously enforce the law" and "is confident that she can do so in a fact-specific and evenhanded way with every matter she will face."

It's not as if Varney is a blind Microsoft loyalist, either. Bloomberg noted that Varney once lobbied the Clinton administration on behalf of Netscape urging antitrust action against Microsoft.

But, Varney said, times have changed. She pointed to Google as the current threat with its monopoly in online advertising. That position, though lawfully obtained could give the company too much control over the emerging world of cloud computing, she said in the June speech.

"When all our enterprises move to computing in the clouds and there is a single firm that is offering a comprehensive solution," Varney said, again according to Bloomberg. "You are going to see the same repeat of Microsoft."

Unfortunately for Microsoft, Varney's updated world view has not taken hold in Europe, which last month issued a preliminary finding that the inclusion of a browser within Windows violated its antitrust laws. Microsoft cautioned in a regulatory filing last month that Europe might force Microsoft to distribute multiple browsers with Windows and perhaps even disable some Internet Explorer code if a user selects a different browser.