SAN FRANCISCO—After a four-week trial, U.S. District Judge Vaughn Walker showed on Tuesday that he still had distinct doubts about the Department of Justices definition of the “high-function” enterprise software market. This definition is key to the governments effort to prove that Oracles $7.7 billion bid to buy out PeopleSoft would violate antitrust law.
Both sides spent a total of 3 ½ hours presenting their closing arguments in the case that will determine whether Oracle Corp. will be allowed to follow through with its tender offer to purchase all outstanding shares of PeopleSoft Inc.
With the trial and closing arguments complete, Oracle and DOJ lawyers estimated that it will be at least three or four weeks before Judge Walker issues his decision.
The government called on Walker to block the merger on the grounds that only Oracle, PeopleSoft and SAP AG compete for sales of high-function enterprise software to enterprise customers.
Rather than simply listening to both sides present their arguments, Walker took the lead in questioning each attorney about the key points of their cases and the issues he was still seeking answers to.
Walker called the governments definition “unwieldy and awkward,” noting that it includes 18 different elements describing features, function and complexity. He asked DOJ lead attorney Claude Scott, “Is this a definition that has ever been used outside of this litigation?”
Scott answered, “Regardless of whether there is a technical, formal definition, the market acts in a way consistent with there being two products and two sets of customers”—midrange and high end. Voluminous testimony by customers and vendors supports the governments definition, he said.
Walker also questioned the DOJs insistence that the relevant antitrust market should be limited to the United State rather than to the global enterprise application software market. All three main competitors sell the same suite of applications in markets around the world, Walker noted.
Scott argued that the United States should be the relevant market because SAP doesnt have the same competitive position in North America that it does in Europe and in other parts of the world. In the United States, Oracle and PeopleSoft are stronger competitors because customers prefer to do business with domestic vendors, he said.
The merger would end the “fierce head-to-head competition” that enables customers to win hefty price discounts and frequent product upgrades, the DOJ argued. Furthermore, the government rejected Oracles claims that other competing companies, including Microsoft Corp. and Lawson Software Inc., would move upmarket to fill the niche that was occupied by PeopleSoft.
Oracle lead attorney Daniel Wall argued that the government failed to prove its “unilateral effects” theory that Oracles buyout of PeopleSoft alone would be anticompetitive and would give Oracle the market power to raise prices to the detriment of customers.
It was only in the final stages of the trial that the government tried to support a “collateral effects” case claiming that after the PeopleSoft buyout, Oracle and SAP would both have the opportunity to raise prices because together the two companies would have controlling market power in the high-end enterprise software market.
Walker asked Wall to explain why Oracle couldnt invest $7.7 billion in research and development to improve its competitive position rather than spend it on buying PeopleSoft. Wall argued that this was the best way for Oracle to remain competitive with SAP and other competitors in the market.
Walker also expressed frustration with the highly technical jargon used by the many experts, customers and industry executives who testified in the case. “Why dont these people speak English in this case?” Walker asked. These witnesses “have forgotten more about” enterprise applications software “than I will ever know.”
Wall said it has never been his practice to “read anything into the questions” that a judge asks the opposing counsel because “that tends to not be a very productive endeavor.” Walker “gave each side a good workout,” Wall said.
Oracle presented a strong case in its favor and “I wouldnt change a thing,” he said. “We proved a lot of our case out of the mouths of the customers and witnesses” called by the government, Wall said, adding, “I think this will stand us in good stead” as Walker reviews the testimony and arguments.
R. Hewitt Pate, assistant attorney general for antitrust, expressed confidence that the government would win the case, saying that a possible appeal “is not even something I have begun to think about.”
PeopleSoft president and CEO Craig Conway, who was not called to testify during the trial, was present at Tuesdays closing arguments. And the end of the court session, Conway expressed relief that the trial was finally coming to a close. “My hope is for an expeditious decision,” Conway said. “I was tired of the litigation a long time ago.”
The prolonged trial and buyout pursuit by Oracle have brought “harm to the customers and harm to the business,” Conway said.