Oracle Trial Opens with Wrangle over Market DefinitionBy John Pallatto | Posted 2004-06-07 Email Print
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Opening arguments from Oracle and the Department of Justice centered on just what "high function" software really is, and which companies are part of that market.
SAN FRANCISCOWhether the market for enterprise resource management software is as narrow and limited as the U.S. Department of Justice claims was the focus of opening arguments Monday in the government's antitrust lawsuit against Oracle.
Department of Justice antitrust specialist F. Claude Scott argued that Oracle Corp.'s attempted $7.7 billion takeover of PeopleSoft Inc. is inherently anticompetitive because it would eliminate one of only three top players in the market for "high function" software: SAP AG, Oracle and PeopleSoft Inc.
Scott defined "high function" software as financial management and human resources management software that is so complex and requires so much configuration, customization and maintenance that only the biggest and richest companies can afford to buy it.
The DOJ is asking U.S. 9th District Court Judge Vaughn R. Walker to impose a permanent injunction to prevent Oracle from buying out PeopleSoft.
Oracle's lead attorney, Daniel Wall, dismissed the DOJ's "high function software" definition as so vague and arbitrary that the government might as well call the it "Yahwehthe market whose name can't be spoken."
As the DOJ's Scott began his opening argument, Judge Walker closely questioned him about whether this software is readily available to customers in Europe and Asia as well as in the United States. Scott agreed that it is.
But he said that with the software's availability concentrated in just three major suppliers, continued competition between Oracle and PeopleSoft is essential to ensure that customers have enough choices to moderate prices.
Scott argued that other, smaller enterprise software companies, such as J.D. Edwards, now owned by PeopleSoft, had tried to build up their software to match the "high function" capabilities of PeopleSoft, SAP and Oracle, but gave up because it would cost too much and take too much time to compete at the same level.
PeopleSoft ended up buying J.D. Edwards days before Oracle presented its bid to buy out PeopleSoft.
Next Page: Oracle attorney calls the DOJ's case "anecdotal- and vignette-driven."
Wall claimed that the DOJ has failed to present any detailed studies on the market or on customers' buying decisions to show that an Oracle buyout of PeopleSoft would be anticompetitive.
Instead, he said, it is presenting a vague, "anecdotal- and vignette-driven case" based on a tiny subset of the overall market.
The case is unusual in the annals of antitrust law, Wall argued, because the DOJ isn't claiming there is any active collusion by a group of companies to create an anticompetitive cartel. Instead, the DOJ is claiming that the "unilateral effect" of Oracle's buying out PeopleSoft would be anticompetitive.
Wall suggested that whatever the outcome, United States v. Oracle "is likely to be a landmark case" that clarifies the law in this area.
Wall also contended that the DOJ has arbitrarily ignored the midmarket players in its definition of "high-function" software.
As part of that market, Wall included Microsoft Corp.; Lawson Software Inc.; Automatic Data Processing Inc.; American Management Systems Inc., which was acquired in May by CGI Group Inc.; and the financial software development arm of Fidelity Investments Inc.
When these companies are included, Wall said, it becomes apparent that the market is highly competitive. In fact, Wall claimed that the PeopleSoft buyout would be "pro-competitive" because it would give these companies new incentive to invest and expand to take PeopleSoft's place in the competition with Oracle and SAP.
Microsoft in particular is making a concerted effort to sell financial management and other enterprise software components to many of the divisions and departments of the same companies that Oracle, PeopleSoft and SAP are competing for, Wall said.
As further evidence of the competitive momentum a PeopleSoft buyout would lend to the market, Wall cited Microsoft's disclosure in pretrial discovery that it had explored a possible merger of Microsoft and SAP after Oracle announced its bid for PeopleSoft.
Microsoft issued a news release Monday acknowledging the merger talks in expectation that they would be revealed in open court here.
Microsoft and other companies that were ordered to provide evidence in the Oracle trial had tried to block disclosure of "proprietary information" that might compromise their business plans. But Judge Walker denied their objections and gave attorneys for Oracle and DOJ access to the information they sought.
However, there was agreement in the courtroom to restrict public access to market information that the various parties in the case hold as proprietary and confidential. Judge Walker said the court "would attempt to deal with these problems as best we can as we go along."
Scott said he was prepared to switch off courtroom monitors that allowed the public to view PowerPoint slides and other documents the lawyers displayed to the judge. The monitors were switched off several times during the course of arguments Monday.