U.S., Oracle case moves to post-trial phase

Spencer Swartz

SAN FRANCISCO: When a federal judge decides next month whether Oracle Corp.'s hostile takeover bid of rival business software rival PeopleSoft Inc. can go forward, he will have to decide between two sharply different views of the business software market.

The U.S. Justice Department believes the business software industry is a tightly contested market dominated essentially by just Oracle and PeopleSoft.

Removing one of these companies, according to the government, would lead to higher prices because of the dominance of a merged Oracle/PeopleSoft.

Oracle, however, rejects the government's view as too narrow and says it excludes an array of niche software vendors, such as Lawson Software, and rising competitors such as Microsoft Corp., the world's biggest software maker.

A one-month trial to help square the two divergent views ended Thursday in federal court in San Francisco after roughly 100 hours of testimony from no fewer than 40 witnesses and upwards of 800 different pieces of evidence, by one estimate.

Final arguments in the trial are scheduled for July 20 though a ruling by U.S. District Court Judge Vaughn Walker, who will solely decide the outcome of the trial, is not expected until at least August.

Walker will begin assessing whether a takeover would lead to higher prices for software that runs the finances and human resource functions for many of the world's biggest companies.

One of the challenges Walker faces is to navigate between applying antitrust laws written a century ago to the modern-day realities of the software world, where innovation is as rapid as the cast of changing market players, analysts said.

"Technology is so fast-moving that just looking at current behavior is not adequate," said Hal Varian, an information technology specialist and professor at the University of California Berkeley.

"It's difficult because you see companies making plans now for where the industry is going to be. And the judge has to sort this out and make a decision about whether these trends are solid enough to base a legal judgment," he said.

MICROSOFT, A THREAT?

The Justice Department has the burden of showing what, if any, enhanced ability a merged Oracle/PeopleSoft would have to raise prices for human resource and financial software.

Walker will also have to consider whether any companies, such as Microsoft, are looming, head-to-head competitors of Oracle.

Oracle says Microsoft's intentions to compete with it were made clear with Microsoft's announcement at the start of the trial that it considered buying Germany's SAP.

Microsoft abandoned talks with SAP, but government and Oracle witnesses testified it could be as little as two years before Microsoft's current business software products aimed at small- and medium-sized firms compete with Oracle in the "upmarket" aimed at big companies.

Walker will also consider testimony from both sides that big companies routinely get large software discounts - sometimes up to 90 percent off the original price.

Oracle has argued big customers, like German-American auto giant Daimler Chrysler AG, receive such discounts, in part, because of their negotiating abilities and because software vendors need them as references for future customers.

The government, however, has argued the discounts would vanish because PeopleSoft is Oracle's biggest competitor and, therefore, prevents Oracle from currently raising its prices.

"The judge will have to weigh whether these discounts will end if the merger happens," said Charles Biggio, a former senior official at the Justice Department's antitrust division.

Opinions are still divided on whether the deal will go through.

Analysts have indicated in research notes over the past month that Oracle's chances of prevailing have improved, but PeopleSoft shares closed at $17.21 on Friday, roughly 18 percent below Oracle's revised tender offer of $21. This is an indication that PeopleSoft investors are not certain Oracle would be given a chance to buy their shares.

(Additional reporting by Dane Hamilton in New York)