[A2k] KEI letter to US DOJ, opposing IBM acquisition of Red Hat

James Love james.love at keionline.org
Wed Mar 13 11:15:19 PDT 2019


The following was sent to US DOJ today, to express KEI’s opposition to the
IBM acquisition of Red Hat.


13 March 2019

Bindi R. Bhagat
U.S. Department of Justice
Antitrust Division
Technology and Financial Services Section

Dear Ms. Bhagat,

Thank you for taking our call today, regarding the International Business
Machines Corporation (IBM) effort to buy Red Hat, Inc. As discussed,
Knowledge Ecology International (KEI) is opposed to IBM acquiring Red Hat.

At present, Red Hat controls the most important Linux distribution for
internet and cloud servers.

The important metrics in this area include, but are not limited to, the
share of internet traffic supported by Red Hat server installations, as
well as the revenue that Red Hat realizes for maintaining and customizing
Linux server software, compared to other Linux server distribution
companies or organizations.

Red Hat is an important contributor to the Linux kernel and to the code
that is used in many elements in the broader Linux/GPL platform of free
software programs that used by servers platforms, including the many
non-Red Hat Linux distributions.

IBM is proposing to pay a large premium for Red Hat. Prior to the
acquisition offer, Red Hat was valued at approximately $20.5 billion. IBM
is proposing to buy Red Hat for $34 billion, a premium of about 67 percent
of the previous value.

IBM could have invested in Red Hat stock at a much lower price, if the
objective was simply to share in the expected profits of Red Hat,
continuing its current business offerings. What IBM gains from its
acquisition of Red Hat is control, and the ability to shape the direction
of its software development efforts, to favor IBM’s own cloud services.

Today Red Hat is considered a neutral partner for many companies offering
or developing cloud services. If IBM acquires Red Hat, the trust in Red Hat
is be eroded, and IBM will have powerful incentives to influence Red Hat’s
software development efforts towards providing special functionality and
benefits to IBM and the IBM cloud services, and even to degrade the
functionality of services to companies that compete directly with IBM, or
fail to buy services from IBM.

The Department of Justice (DOJ) should consider the impact of the merger on
the incentives that Red Hat will have, post merger, to undermine
competition and degrade the benefits of a more level playing field, for
this critical internet resource and platform.

Our concerns are shaped to some degree by the detrimental decision made by
the DOJ in approving the Oracle acquisition of Sun Computer’s open source
assets, including the MySQL database program. At the time, DOJ viewed the
MySQL software as unimportant, because the revenues were small, relative to
other database programs. Most users of MySQL did not pay any fees to use
the software. Our organization, KEI, used MySQL to support our Joomla,
Drupal and WordPress content management systems, and did not pay fees to
Sun Computers, along with countless other businesses, non-profit
organizations and individuals who also used the free version. We were
concerned, at the time, that Oracle would degrade and slow the development
of the capacities of MySQL, in order to protect Oracle’s very expensive
proprietary database services. We believe that our concerns about Oracle
have unfortunately been borne out, by the blunting of the rate of
innovation and ambition for MySQL, the fact that Open Office (another
program gained in the acquisition of Sun Computers) is no longer an
important free software client for office productivity, and Oracle’s
aggressive litigation over copyright and patent claims related to Java.

The DOJ might consider conditions on the merger that would provide greater
assurances that Red Hat will not be used to create an unlevel playing field
that favors IBM’s own cloud services. We are willing to suggest such
conditions, relating to governance, licensing and other issues. For
example, the DOJ could require IBM to show how it will ensure the continued
policy of ensuring that Red Hat’s patents are only used for defensive
purposes. Conditions on this issue should be durable, and avoid predictable

IBM’s competitors and existing customers of Red Hat will have more informed
suggestions as to specific conditions that would protect IBM’s competitors.
But overall, the best decision would be to reject the merger, on the
grounds that is is fundamentally designed to create an unlevel playing

Red Hat is not just another technology company. It is one of the main
reasons the internet functions as well as it does.


James Love
Knowledge Ecology International (KEI)
1621 Connecticut Avenue, Suite 500
Washington, DC 20009

James Love.  Knowledge Ecology International
http://www.keionline.org <http://www.keionline.org/donate.html>

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