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7/21/2004
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Oracle And Government Present Final Arguments

Each side had one last chance to impress U.S. District Judge Vaughn Walker, who's expected to make a ruling within two months.

Attorneys for Oracle and the government clashed for the final time Tuesday in federal court in San Francisco before Judge Vaughn Walker, who will decide within a few weeks whether the Oracle's $7.7 billion hostile bid for PeopleSoft Inc. can go forward.

The issue before the court is whether allowing Oracle to acquire PeopleSoft would lessen competition. Under the Clayton Act, an acquisition may not substantially lessen competition or tend to create a monopoly.

The government contends that only Oracle, PeopleSoft, and SAP supply high-function financial and human-resources enterprise applications software, and that a takeover of PeopleSoft would stifle competition in a market sliver that accounts for about $500 million in annual sales. Oracle disputes this, claiming that it faces vigorous competition and that the government's definition of the market is too narrow. Analysts have estimated the overall market at between $20 billion to $40 billion.

In an effort to better define the nature of the market, Judge Walker engaged lawyers from both sides with challenging questions during the 3-1/2-hour session. Addressing the central ambiguity of the case, he asked government attorney Claude Scott, "How do I look at the software and identify it as midmarket software or high-function software?" Lacking a simple answer, he inquired whether a market defined by some 18 characteristics, according to the government's definition, was even significant.

Scott assured him that it was.

After reviewing the testimony of several witnesses, the judge asked, "Isn't innovation going to be furthered by this merger?"

Scott said the evidence doesn't support that contention, noting that testimony from Oracle CEO Larry Ellison and co-president Safra Catz indicated that innovation was not stipulated by maintenance contracts.

Judge Walker also put probing questions to Oracle attorney Daniel Wall. "You criticize the government for being loose with its product definition; aren't you being loose with yours?" he asked.

"I can't answer yes to that. The obvious answer is no," mused Wall, eliciting laughter from the packed courtroom.

Toward the end of Wall's summary, Judge Walker asked how he should deal with the compelling testimony of all the customer witnesses who perceive a gap between Oracle, PeopleSoft, SAP, and everyone else.

Wall insisted that the government's witnesses didn't present a reasonable test. However, after the trial concluded, he put a more positive spin on the customer testimony. "We proved an awful lot of our case out of the mouths of their customer witnesses," he said outside the courtroom.

Whether Judge Walker sees it that way is anyone's guess.

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