The DoJ has upped the stakes in its battle with Oracle over the latter's attempted hostile takeover of rival PeopleSoft by announcing that it has uncovered evidence that Oracle discounts its products, when up against rivals SAP and PeopleSoft, in order to win sales.

The announcement, made in court papers filed at the start of the week, is intended to back up the DoJ stance that allowing the takeover would reduce the market for ERP software to just two companies and have a detrimental effect on competition, and hence choice and price.

The DoJ decided to sue Oracle last month to prevent the acquisition from going ahead. Lawyers for Oracle and the DoJ will meet today, with the San Francisco judge overseeing the lawsuit, to establish ground rules for the case, which the two sides anticipate moving to trial in June.

In a filing detailing disputed issues, the DoJ accused Oracle of withholding information about internal requests for discounts as well as executive approval forms. "[These forms] provide first-hand accounts from defendant's salespeople and executives of how competition affects pricing. They reveal that the defendant can, and does, engage in price discrimination and that the identity of the defendant's competitor in a deal often effects the level of discount offered to the customer," the DoJ wrote. "The discount forms are among the most direct evidence that the presence of PeopleSoft in the marketplace directly affects the prices and features of defendant's software."

Both parties agreed that Oracle turned over some discount forms during the DoJ's eight-month investigation of Oracle's PeopleSoft plans. Oracle argued in its own court papers, filed Monday, that the remaining documents sought by the DoJ are not papers it is required to surrender in the discovery process.

"This issue evidently came to a head after Oracle had certified substantial compliance with the (DoJ's) second request and was never resolved," Oracle's lawyers said in their filing. An Oracle spokeswoman declined to comment on the company's discounting practices.

The DoJ's anti-trust case centers on its argument that the high-end market for integrated financial and human resource management software has just three players: Oracle, SAP and PeopleSoft. Combining two of those three would unacceptably limit competition and raise prices, it says.

Oracle counters that the market is a fragmented one, citing as rivals vendors including Lawson Software and Baan. It also disputes the existence of a clearly defined high-end market as described by the DoJ.

The two sides are lining up others in the industry to back their respective views. SAP CEO Henning Kagermann told journalists last week that the company sees the applications market as a diverse and competitive one. A UK SAP spokesman said the company is considering communicating its views, through a letter or a meeting, to the DoJ and the European Union, which also needs to green-light the deal before an acquisition could be completed.

Meanwhile, the DoJ could find its view of the market backed by an unlikely bedfellow - Microsoft. In regulatory filings, containing presentations explaining its case, Oracle cited Microsoft's growing presence in the back-end applications market as a competitive threat. However, Microsoft considers small and mid-market customers as its prime target, a spokeswoman said this week - not the high-end market the DoJ is focusing on.

Oracle's wrangle with the DoJ could prolong its campaign to assimilate PeopleSoft but the company's chances of victory remain slight.

Even if Oracle entices PeopleSoft shareholders to take advantage of its all-cash, $9.4 billion (£5.2bn) tender offer, PeopleSoft's management can block a takeover by deploying the company's "poison pill" - a provision in its bylaws that lets it dilute its shares and drastically increase the cost of a hostile acquisition.

Oracle is suing in Delaware's Chancery Court to remove the poison pill but it faces another lawsuit in California's Alameda County Superior Court brought by PeopleSoft, which charges Oracle with libel and unfair competition. The parties in the Alameda County lawsuit are scheduled to hold a case management conference next month, after the judge in that dispute refused Oracle's request that the case be dismissed.