Oracle antitrust trial fails to produce winner

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.

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 $7.7bn 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 US District Court in San Francisco wound down Thursday after Oracle and the US Justice Department rested. Each side is expected to make closing statements on 20 July, 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.

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 $500m or so of the more than $20bn 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 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 favour by 50.1 per cent.

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 works 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."