July 1, 2004 11:00 PM PDT

No clear-cut winner in Oracle antitrust trial

After four weeks of the Oracle antitrust trial, the corporate software industry's complex web of alliances and rivalries has been untangled, but there's still no clear answer to the central question--whether an Oracle-PeopleSoft merger would be anticompetitive.

News.context

What's new:
Oracle and the Justice Department just finished four weeks of fighting over whether the company's desire to take over PeopleSoft would leave an uncompetitive market.

Bottom line:
We won't have a verdict until August or September. In the meantime, observers are split over who was most convincing before the judge.

Oracle, PeopleSoft and Germany's SAP dominate the market of enterprise software for major corporations. They provide applications for payroll, human resources and other functions to major manufacturers, telecommunications firms and other big operations. The Justice Department is trying to stop Oracle from pursuing a $7.7 billion hostile buyout of PeopleSoft, arguing that a market overshadowed by SAP and a bigger Oracle wouldn't have sufficient competition to drive prices down and innovation up.

The nonjury trial in U.S. District Court in San Francisco wound down Thursday after Oracle and the U.S. Justice Department rested. Each side is expected to make closing statements on July 20, then await Judge Vaughn Walker's decision on whether Oracle may pursue the acquisition.

Walker is expected to issue his ruling in August or September. In the meantime, observers are split on exactly who came out ahead.

A handful of technology analysts said Oracle's vigorous opening arguments set the tone of the trial and that the government never fully recovered from a stumbling start on the first day. "I think (the Department of Justice) is on really shaky ground and has been from beginning," AMR Research analyst Jim Shepherd said.

Tracking the trial

The four weeks of testimony in the Oracle-DOJ trial included surprise revelation, colorful testimony and tedious but necessary detail.

Microsoft, SAP mulled merger
The companies initiated merger discussions late last year, but eventually broke off talks for reasons of complexity, according to information released during discovery in the Oracle case.
June 7, 2004

Oracle hits hard at Justice Dept.'s case
A feisty Oracle comes out swinging at the government's insistence that its proposed acquisition of PeopleSoft would be detrimental to the business software market.
June 7, 2004

Oracle sees plenty of competitors
Oracle points to a PeopleSoft competitive analysis that shows there's more competition in the business application software market than PeopleSoft or the Justice Department have claimed.
June 8, 2004

Offer holds risks for early takers
PeopleSoft investors who accepted Oracle's tender offer of $26 a share--then didn't notice the offer drop to $21, or the recent rise in the stock's value--could lose money in the unlikely event Oracle opts to buy their shares now.
June 9, 2004

DOJ: Big three rule corporate market
Testimony from IBM and PeopleSoft customer Verizon supports the Justice Department case that there's not enough competition to allow Oracle's acquisition plan.
June 9, 2004

Trying a 'landmark case'
perspective Oracle's legal team might be outrunning the Justice Department, but CNET News.com's Karen Southwick says the race is a marathon, not a sprint.
June 10, 2004

Judge vows 'tougher line' on testimony
As the trial labors toward a definition of the enterprise software market, judge Walker tells both sides to get realistic about business information they deem confidential.
June 10, 2004

Oracle judge won't bar disputed witnesses
Neither Oracle nor Justice Dept. manage to keep other's witnesses off the stand.
June 11, 2004

Govt. witnesses decry lack of choices
The Justice Department elaborates on its contention that an Oracle-PeopleSoft merger would crush competitiveness.
June 14, 2004

Automaker cites customer costs of PeopleSoft takeover
Buyers of business applications worry that Oracle wouldn't support PeopleSoft users, forcing them into costly upgrades.
June 15, 2004

Testimony: SAP, Microsoft would keep Oracle in check
An Accenture executive testifies that credible competition would still exist after an Oracle-PeopleSoft merger.
June 16, 2004

Documents show PeopleSoft feared Microsoft
Oracle's attorneys aim to prove that PeopleSoft feared more rivals than itself and SAP.
June 17, 2004

Economist: Oracle-SAP duopoly would hurt market
Antitrust expert supports Justice Department argument that Oracle's proposed purchase of PeopleSoft would be anticompetitive.
June 18, 2004

Oracle president backpedals on 'oligopoly'
Justice Department plays up market observations Charles Phillips made in a previous incarnation as an analyst.
June 18, 2004

For Oracle, a range of acquisition targets
CEO Larry Ellison says software makers Siebel and BEA are on the company's wish list.
June 21, 2004

Oracle's lengthy shopping list
Court documents offer a rare glimpse into how Oracle assessed nine companies for possible acquisition.
June 22, 2004

PeopleSoft CEO blasts Ellison's 'jealousy'
Craig Conway says his company will beat leader SAP but stays mostly mum on Oracle's ongoing takeover attempt.
June 22, 2004

Oracle moves to blunt Microsoft testimony
White paper showing frequent competition meant to counter Wednesday's Justice Department witness.
June 22, 2004

Market matters spurred Microsoft-SAP talks
Microsoft worried that if Oracle acquired PeopleSoft, it could lose ground in the database software market.
June 23, 2004

Microsoft executive cites expansion worries
Even a software giant can't be a big presence in every market, it seems. Oracle, meanwhile, looks at the little guys.
June 25, 2004

PeopleSoft, Oracle talked merger in detail
Oracle president says PeopleSoft proposed and discussed merging before the hostile takeover attempt was launched.
June 25, 2004

Oracle-PeopleSoft rivalry fueled innovation
The Justice Department presents Oracle e-mails, saying they show responsiveness to pressure from the rival it wants to acquire.
June 25, 2004

PeopleSoft CEO won't testify
Oracle decides to forego planned six-hour grilling of Craig Conway, but opens final week with testimony from Lawson Software CEO.
June 28, 2004

Microsoft details SAP buyout plan
Microsoft described star-crossed "Project Constellation" as its only shot at the high-end market for business software.
June 29, 2004

Ellison: 'Radical' industry shift drove bid
Oracle's CEO testifies that competitive pressure compelled the company to attempt a hostile acquisition of PeopleSoft.
June 30, 2004

Oracle rests case as antitrust trial winds down
An economist says the merger would aid competition. Papers show IBM looking nervous.
July 1, 2004

What bothers many technology analysts about the government's case is that it's concerned with a relatively small slice of the overall enterprise software market. The market for so-called high-function human resources and financial programs at the heart of the case generates about $500 million or so of the more than $20 billion that companies spend each year on business applications, according to the Justice Department. Oracle says it's even smaller than that.

"I think the risk that (the government) runs here is that the definition is so narrow that the court may not see the market as big enough to regulate," Forrester analyst Paul Hamerman said.

A former Justice Department antitrust official found the government's case more compelling. Stan Gorinson, now a partner with Kilpatrick Stockton, noted that the government didn't have to bear as great a burden of proof as in a criminal trial. As the plaintiff in a civil case, Justice Department attorneys must only persuade the judge that arguments tilt in their favor by 50.1 percent.

Another attorney, hired by investor clients to monitor the trial from the courtroom, said he believes the Justice Department will ultimately prevail. The attorney, who asked not to be named, said the government met its burden of proof in "introducing good evidence."

Witnesses for the plaintiff
The Justice Department's customer witnesses were particularly strong, such as Laurette Bradley, executive vice president of information technology at Verizon Communications, and Perry Keating, senior vice president of global enterprise solutions for systems integrator BearingPoint, the investor attorney said.

Bradley, under cross-examination by Oracle, was steadfast in her belief that Verizon, a PeopleSoft customer, would "lose either way" if forced to chose between a merged Oracle-PeopleSoft or industry leader SAP.

Keating testified that the system integrator's customers chose SAP, Oracle or PeopleSoft for their projects, with Lawson Software a distant fourth. Keating gave an overview of how system integrators and the industry work and provided a detailed, coherent explanation for the judge, the investor attorney said.

The Justice Department was also able to establish its case that Oracle's pricing is affected by whether PeopleSoft is competing for the same customer, he said. Internal discount forms showed Oracle was aware when it was competing against PeopleSoft in the bidding process and would seek executive approval to offer a larger discount, according to court documents.

But the Justice Department also called some witnesses to the stand that did little to advance its case. Marco Iansiti, a Harvard Business School business professor, was one, the investor attorney said. "A lot of his testimony was shaky. When he talked about his (merger) analysis, Oracle got him to admit he had not factored in outsourcing or the 'do nothing' choice as options."

Oracle takes its stand
After the Justice Department's two weeks of presenting testimony, Oracle took the offensive with a pared-back list of witnesses--it even reversed its plan to call PeopleSoft CEO Craig Conway to testify.

In an unusual move that some say backfired for Oracle, the company paid a "fact witness" to testify in the case. But hiring Ken Harris, a former IT executive at the Gap, Nike and Pepsi, may have hurt Oracle's cause, attorneys say.

"Hiring a fact witness is new to me. It sounds to me like he wouldn't have much credibility," Gorinson said. "Hiring an expert witness is common because they're experts in their field, but fact witnesses are to testify about the facts in the case."

Judge Walker seemed to have taken note, referring to Harris at one point during his testimony as "your paid witness," rather than by his name.

Near the end of the trial, Oracle CEO Larry Ellison said that Oracle's bid for PeopleSoft was not about market dominance or destroying a rival, but keeping his company competitive in a difficult market. The often combative Ellison was more contained than his flamboyant reputation might have suggested, but he was unflinching--and good-humored--under cross-examination. But not every observer was enchanted.

"Why did they bring him to testify?" the investors' attorney wondered. He said Ellison's testimony mostly reiterated what Oracle had already presented to Judge Walker. The investors' attorney said Ellison's argument, that expanding Oracle by swallowing a major rival would foster competition in the market, goes against common antitrust theory.

"Ellison's testimony had nothing to do with legal premise," he said. But it did garner a lot of media coverage--reports likely to be seen by Oracle competitors, investors in both Oracle and PeopleSoft and other industry players. "Maybe it was more about doing public relations for the case."

Dueling economists
Testimony from numerous economists seemed to be a wash. Not surprisingly, the economists called by the government were at odds with those that testified for Oracle.

One of the more compelling government witnesses was University of Virginia economics professor Kenneth Elzinga. Gleaning information from Oracle's internal discount approval forms, he offered an especially lucid analysis of the business applications market in which Oracle, SAP and PeopleSoft compete. However, in cross-examination, Oracle's legal team managed to cast some doubt on Elzinga's methods, pointing out extraneous data he included in his statistics.

With the burden of proof resting on the government's shoulders, some think the confusion could play into Oracle's hands. "In the absence of anything clear cut, the judge will have to rule in Oracle's favor," predicted Enterprise Applications Consulting analyst Joshua Greenbaum.

Everybody had a stake
What makes the trial such a toss-up is that so much of the testimony came from biased witnesses. Oracle leaned heavily on testimony from rivals SAP and Lawson Software. Yet both companies stand to benefit from the removal of a chief competitor like PeopleSoft from the market.

IBM and Microsoft testified on behalf of the government, but confidential documents from both companies revealed that they fear losing ground to Oracle in other software battles if the PeopleSoft deal happens.

The customer testimony was also less than straightforward. Testimony from distraught PeopleSoft customers, such as Verizon Communications, was central to the government's case. However, much of their alarm appeared to stem from pocketbook concerns--the prospect of having to install new business systems after investing millions of dollars in their PeopleSoft projects--than from genuine antitrust worries.

"Their issue is that they spent a lot of money on PeopleSoft technology, and they're worried that investment is going to be stranded, that it's going to be damaged and that they are going to incur migration costs," said Oracle lead attorney Daniel Wall. "I don't regard that as an antitrust issue."

The Microsoft Factor
Some of the trial's high points may not ultimately have bearing on the antitrust question, such as details of previous merger talks between PeopleSoft and Oracle, or the presence of Larry Ellison, Oracle's high-profile CEO. The most relevant marquee name, Microsoft, didn't appear to deliver an obvious benefit to either side. The stunning news, on the opening day, that Microsoft had approached SAP about a merger last year at first appeared to support Oracle's case. While the discussions were abandoned, Oracle pointed to them as proof that Microsoft, a marginal player in the back-office applications market today, has plans to compete more aggressively.

Yet Microsoft executive Doug Burgum later testified that Microsoft gave up its intentions of competing at SAP's level when the merger talks fell through, and internal Microsoft documents corroborated his story. Justice Department lawyers argued that the aborted SAP deal demonstrated the market's high barriers to entry, one of the pillars of its case.

 

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