The European Commission is reviewing Oracle’s licensing, two months following its settlement with SAP.

      The European Commission is collecting information on Oracle's cloud software licensing practices, similar to actions it took against SAP two months ago. Reuters reported this inquiry on Monday, citing an insider source, after MLex initially broke the news.

      The Commission has been cautious about what it will confirm. A spokesperson stated that there is no formal investigation into any company, but regulators will keep an eye on potential anticompetitive practices. This distinction is important; seeking information from third parties is a legitimate part of the process, but it does not entail the legal implications of launching a formal case. For companies, this stage allows them the most opportunity to address concerns before the situation escalates publicly and becomes harder to resolve.

      SAP serves as a notable comparison. In July, the German software firm settled similar issues by agreeing to simplify the process for customers to leave its software and terminate contracts, thus avoiding fines that could have reached 10% of its global annual revenue.

      The practices being examined are not overly concerning, but they can be quite effective. Licensing terms that make it costlier to operate software on a competing cloud or contracts that are challenging to exit can keep customers dependent on a provider without requiring the provider to actively win their business back.

      Oracle's databases are particularly challenging to replace. They form the backbone of financial systems, government registries, and industrial software developed around them over decades, granting licensing terms more influence than they would have with an average productivity application.

      Oracle has encountered licensing complaints for years, typically outside the realm of antitrust. Its software auditing practices have consistently been a significant source of disputes with European customers, generally resolved through commercial agreements instead of regulatory actions.

      Cloud computing has altered the competitive landscape. When software operated on a company’s own hardware, licensing terms were mainly a commercial issue. Now, when those terms impact which cloud a customer can afford to use, they can influence competition among cloud providers.

      Oracle did not respond when contacted by Reuters. In contrast, SAP opted to settle before a formal case was initiated, providing certainty but less opportunity to dispute the concerns raised.

      Oracle is now also a major cloud provider, adding another dimension to its licensing model. Terms that make it expensive to run Oracle software elsewhere can enhance its infrastructure business in ways that were not possible when Oracle primarily focused on software sales.

      The Commission has been analyzing the cloud market from various angles. It is also investigating Google’s search behavior, while its broader digital regulation encompasses the largest platforms under the Digital Services Act and applies specific regulations to cloud services under the Digital Markets Act.

      For European clients, the practical issue lies in the cost of switching. If transferring a database to another cloud necessitates new licenses or renders the existing software prohibitively expensive, customers cannot truly choose between providers on equal footing, regardless of market share statistics.

      This issue appears in Europe’s discussions surrounding technological sovereignty. Public institutions attempting to shift workloads to European infrastructure may find that licensing, rather than hardware, ultimately dictates where their software can economically operate.

      This is generally the essence of what SAP's settlement addressed. Whether Oracle will strike a similar deal, contest the concerns, or persuade the Commission there is no competition issue will determine whether this evolves into a formal investigation.

      The timing may also be significant. Oracle is investing heavily in AI data center capabilities, creating an awkward backdrop of regulatory questions concerning its licensing model amid such substantial investment and borrowing.

      For now, none of this constitutes an accusation. The Commission is simply asking questions, which is how many inquiries begin, and how some end without resulting in formal cases at all.