Oracle, DOJ Lay Out Strategies in Trial Briefs

As the Monday trial nears, Oracle is fine-tuning its argument that its bid for PeopleSoft is pro-competitive, while the Justice Department will argue that the deal would violate antitrust laws.

As Oracle and the U.S. Department of Justice prepare to face off in a San Francisco federal courtroom Monday, each side is honing its strategy.

Earlier this week, Oracle Corp., of Redwood Shores, Calif., and the Department of Justice (DOJ) released their respective trial briefs, which put to paper each sides case as it will be argued before the court.

The DOJ, joined by 10 states, is seeking a federal injunction to block Oracles $7.7 billion takeover bid for rival PeopleSoft Inc.—an offer that the fiercely independent PeopleSoft has fended off since Oracle first launched its bid last June.

The suit is based on the assertion that the deal would violate antitrust laws by shrinking competition from three players—Oracle, PeopleSoft and SAP AG—to two. The reduced competition would result in higher prices, less choice and less innovation, according to the Justice Department.

Oracle will defend itself by pointing out what it sees as the fundamental flaws in the governments case. It will argue that the deal is pro-competitive given that Oracles real areas of competition are at the platform level with IBM and Microsoft and at the midmarket level where more opportunity—and significantly more vendors—exist.

/zimages/1/28571.gifClick here to read about a developer deal between Oracle and Microsoft.

It will point to additional software options for customers, such as hosting and legacy applications. And it will attempt to prove that midmarket software developers such as Lawson Software Inc. and Seibel Systems Inc. are viable options for enterprise customers.

Both Oracle and the DOJ will look to Microsoft Corp. to further their arguments. Rather than depicting Microsoft as the staunch rival its been in the past, Oracle will suggest that it is a welcome competitor in both the midmarket and the enterprise market, as well as a formidable opponent in the platform market.

Countering the argument of reduced competition, Oracle will make the point that the software market that the DOJ is defining—human resources and financial management systems—is saturated, and that the real opportunities lie within the midmarket, which opens up the competitive landscape. It will point to Microsoft, which plays heavily in the ERP (enterprise resource planning) market.

Oracle also will point to Microsoft as a viable option for enterprise customers.

The Justice Department will counter that with testimony from Doug Burgum, senior vice president at Microsoft, who has stated in the past that the companys plans are to focus on the midmarket.

Burgum will likely discuss Microsofts Project Green, a code-base rewrite under way that will unify Microsofts four ERP suites. The DOJ will point to this as evidence that its very difficult, if not impossible, for most midmarket companies to quickly and easily retool their software to meet enterprise customers needs.

Richard Allen, former chief financial officer at J.D. Edwards & Co., will testify on the Justice Departments behalf regarding JDEs failed attempts at entering the enterprise market.

After spending hundreds of millions of dollars and several years attempting to break into the "upmarket," JDE abandoned its attempts, according to the DOJs trial documentation.

JDE was acquired by PeopleSoft last summer.

Oracle will call Automatic Data Processing Inc. (ADP) and Fidelity Employer Services Co. to the stand to talk about their product offerings.

The DOJ claims in its documentation that ADP and Fidelity use SAP, PeopleSoft and Oracle as their software platforms and that they are not in a position to undercut a price increase from a combined Oracle/PeopleSoft.

Finally, Oracle will argue that the only way it can compete with platform providers IBM and Microsoft is by providing critical mass within its IT stack—the "complementary software technologies that, together with hardware, constitute the overall IT … solutions that business enterprises use," according to the trial brief.

The Justice Department will point to this argument as a distraction from the real market issues.

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