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Oracle-DOJ battle hinges on market definition

Less than three weeks until the trial begins, the proposed witness lists are public and it's becoming clear which arguments each side will make.

The U.S. Department of Justice's case against the proposed Oracle Corp. takeover of PeopleSoft Inc. hinges on the government's ability to narrowly define the business software market, legal experts said.

Both sides in the antitrust battle have submitted their final "wish lists" of witnesses they'd like to see testify in the case, which is slated to begin June 7. Analysts said the stage is now set for a major battle in which the DOJ will seek to prove that the market is made up of large and complex systems that only a handful of vendors offer. Oracle, on the other hand, will argue that the industry encompasses all types of business software.

During the next major pretrial phase, legal experts said the judge will hear each side's motions to eliminate certain witnesses, categories of evidence and types of arguments. For instance, Oracle's lawyers could conceivably move to bar any testimony pertaining to claims of past anticompetitive behavior.

"The witness lists essentially serve as the roster against which the opponent needs to focus its efforts," said Hillard Sterling, an antitrust lawyer at Much Shelist PC in Chicago. "They're sort of like the ducks that the other side now needs to shoot down."

Potential witnesses

Oracle's final witness list, released earlier this week, includes some big players in the enterprise software industry, including Steve Mills, IBM's top software executive, David Schmaier, Siebel Systems Inc.'s executive vice president, and Oracle CEO Larry Ellison. It also features executives from several companies vying for space in the business applications market, including Lawson Software Inc., American Management Systems Inc. (AMS) and Microsoft.

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Follow the takeover battle, step by step

The DOJ's list is weighted with customers expected to testify that SAP AG, PeopleSoft and Oracle are the only real choices when it comes to big enterprise systems that automate accounting, human resources and manufacturing functions. Some of the companies on the list include Verizon Communications Inc., PepsiCo Inc. and Charles Schwab & Co. Inc. Also listed are several past and present PeopleSoft executives, including chief technology officer Richard Bergquist and executive vice president Phillip Wilmington.

SAP, PeopleSoft and Oracle are the biggest business software vendors today. The DOJ's decision to file suit, blocking the $7.7 billion hostile takeover of PeopleSoft, was based on the contention that the merger would lead to less competition and innovation in the space. Oracle argues that the market is full of competition from companies like Microsoft and other companies it hopes will take the stand.

Jim Shepherd, vice president of research at Boston-based AMR Research, pointed out that one of the most powerful witnesses on Oracle's list may turn out to be AMS. Shortly after the DOJ ruled to block the PeopleSoft acquisition, the agency purchased a large financial system from AMS.

"I'm sure that Oracle's lawyers will hammer home how big and complex the [DOJ/AMS] deal is and who the competitors were in that deal," Shepherd said. "All of that is going to put the DOJ in a difficult position."

Microsoft, which entered the business applications market a couple of years ago, will also be a key witness for Oracle, Shepherd said. The Justice Department had originally dismissed Microsoft as a competitor in the space, and Oracle will try to prove that was a bad decision.

"Whether or not they can get Microsoft to say that they're targeting the upper end of the market is questionable," Shepherd said.

Market definition is key

Michael Dominy, an analyst with the Boston-based Yankee Group, said that for Oracle to make a compelling case to the judge, it will need to prove that the market for large, sophisticated enterprise software is shifting. Dominy explained that most large businesses have already made their software investments and that other than maintenance and upgrades, the market for big implementations is shrinking.

Dominy said that Oracle needs to show that the real growth area in the space today focuses on software that extends application functionality to the edge of the enterprise and beyond in order to facilitate cross-enterprise collaboration. If Oracle can show that these "on-demand" style applications are all the rage, then it can take the next step and point to the large number of competitors who provide this type of software.

"These include applications like CRM, product life cycle management, portal technology, and bundled solutions like SAP's xApps [integration software]," Dominy said. "This is where the growth is occurring today and going forward in the large enterprise market."

Attorney Sterling said the government may have a tough time proving its case. The lawyer, who specializes in both technology and antitrust cases, said that so far he hasn't seen any proof that an Oracle/PeopleSoft merger would lead to fewer choices and higher prices in the enterprise applications marketplace.

"Arguably there are many suppliers who could offer competitive products," Sterling said. "All there needs to be is real or potential competition that maintains competitive pressure on Oracle. That is enough to survive an antitrust challenge."

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