Justice vs. Larry Ellison: The Sequel?

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Oracle (Nasdaq: ORCL  ) says that the Justice Department has requested more time to review its proposed $7.4 billion acquisition of Sun Microsystems (Nasdaq: JAVA  ) .

"We've had a very good dialogue with the Department of Justice and we were almost able to resolve everything before the Second Request deadline," said Dan Wall of the firm Latham & Watkins, Oracle's counsel in the deal, in a statement issued Friday. Wall continued: "All that's left is one narrow issue about the way rights to Java are licensed that is never going to get in the way of the deal. I fully expect that the investigation will end soon and not delay the closing of the deal this summer."

Well, that's somewhat encouraging. Oracle has a history of wrangling with Justice, and not always on friendly terms. Rewind to 2004, when the DOJ and seven states sued to block its merger with PeopleSoft. CEO Larry Ellison vowed to fight, and ultimately won.

On the other hand, its 2005 deal for Siebel Systems was extended in much the same way that the proposed Sun acquisition has been, and was ultimately approved, The Wall Street Journal reports. Sun's poor earnings argue in favor of combining with a suitor like Oracle.

But as Wall says, the issue is Java, the platform-cum-programming language that many in the industry license from Sun in order to webify their software. Sun once accused Microsoft (Nasdaq: MSFT  ) of toying with the technology, changing it for Mr. Softy's own purposes, and won a $1.6 billion settlement as a consequence. The feds could consider Java too important for Oracle to control on its own, at least without some sort of ownership guidelines.

Expect Oracle to do what it must. Java is crucial to making Oracle's applications more cloudy -- an Ellison priority -- and in the process, more competitive with (NYSE: CRM  ) , SAP (NYSE: SAP  ) , and even NetSuite (NYSE: N  ) , a would-be rival in which Ellison owns a huge stake.

Justice may be taking its time, but there probably won't be a courtroom sequel. This deal makes too much sense.

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Fool contributor Tim Beyers owned shares of Oracle at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. The Motley Fool is also on Twitter as @TheMotleyFool. The Fool's disclosure policy sometimes suffers from caffeine-induced hallucinations.

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  • Report this Comment On June 30, 2009, at 5:00 PM, telematique wrote:

    I agree this deal is not likely to end up in the courtroom. But with Java DoJ has latched on to something of real substance and might very well require Oracle to make some changes before approving the deal. It’s not just a market share issue like with PeopleSoft and Siebel. The problem is that Oracle is going to inherit Sun’s Java IP portfolio (patents, trademarks, and source code copyrights) as well as ironclad legal control over the Java standards group (aka the Java Community Process). Although IBM probably has some kind of secret deal with Sun guaranteeing its rights to Java even in the event of a takeover, Oracle’s other competitors most likely don’t have this protection. I would bet that SAP and Red Hat in particular are quaking in their boots right now worrying about what Oracle might do if DoJ gives it a pass.

    People think the fact that Sun open sourced most of its Java code means everyone is safe. But the reality is that Sun conspicuously declined to offer a patent covenant for this code (and the GPLv2 license they used does not include one, unlike the newer GPLv3 which Sun carefully avoided). Sun recently used its control over Java IP to block certification of a rival open source version of Java known as Apache Harmony. Not by coincidence, Google’s Android operating system uses Harmony, and Android just happens to be a major competitive threat to Sun’s lucrative business licensing Java on several billion cell phones.

    So there is more going on here than meets the eye. It’s too early to guess what DoJ will do. But I can imagine the kind of remedies they might seek. One possibility would be to ask Oracle to issue a patent covenant (promise not to sue) to users of the open source Java code. Another perhaps weightier possibility would be to require Oracle to spin off the Java Community Process into a truly independent standards body.

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