Lawyers for Oracle and the US Department of Justice (DoJ) presented their opening arguments yesterday in the government's bid to block Oracle's PeopleSoft acquisition, with the DoJ coming under frequent questioning from the judge about its case.
DoJ attorney Claude Scott was first to present in the trial, taking place in federal court in San Francisco. He argued that the merger would unacceptably reduce competition in the market for a type of "high function" enterprise applications used by large corporations, resulting in higher prices for customers.
Almost as soon as he began speaking, Judge Vaughn Walker began peppering Scott with questions about the DoJ's market definition. He asked why it has focused its case on the US software market rather than the worldwide market, and why it considers Oracle, PeopleSoft and SAP to be the only alternatives for many large customers.
"What makes Oracle, SAP and PeopleSoft different from the others, such as Lawson and Microsoft?" Judge Walker asked. Scott said other vendors' products do not support the breadth of functionality required by large corporations, nor the languages and currencies used by multi-nationals. The DoJ plans to call expert witnesses and customers who will testify to that effect, he said.
"Where can I look to for ways in which these product definitions have been developed and used?" Judge Walker asked later.
Scott said the DoJ will present testimony from Oracle's own executives, including chairman and CFO Jeff Henley, indicating that companies in the mid-market require a different type of product than large enterprises.
Oracle has argued that the DoJ's definition of the market is a fiction, and in his opening remarks, Dan Wall, Oracle's lead attorney, tried to hammer that point home. He said the DOJ required 200 words in its pre-trial brief to define the market in question. "There's an anecdote among anti-trust lawyers that says: 'If it takes more than ten words to describe the relevant market, then it's not a relevant market. We are miles beyond that," he told the judge.
The government's case is built on selected "anecdotes and vignettes", Wall said, which it has "cherry-picked" to support its case. There is no established definition for "high function" human resources and financial management software because, in reality, such a category of software does not exist, he argued.
He mocked the DoJ's case by offering an alternative name for the government's "high-function" software market. "It's Yahweh - the market whose name can't be spoken," he said, drawing laughter from the courtroom.
Oracle doesn't want to buy PeopleSoft because it wants to compete better with SAP in the applications market, he said. Instead, the "real competition" is to build a full software stack including a database, middleware and applications, a market where Oracle competes with Microsoft and IBM as much as with SAP.
As evidence, he pointed to Microsoft having entered into discussions last year to merge with SAP, shortly after Oracle said it planned to buy PeopleSoft. Microsoft confirmed that such talks had taken place, apparently because it knew the information would come out at trial. It said it gave up on the idea months ago because the merger would be too risky.
The parties took approximately 45 minutes each to lay out their opening arguments. In contrast to the DoJ's presentation, Judge Walker asked virtually no questions of Wall during his remarks.
One expert in anti-trust litigation said it is uncommon for a judge to ask so many questions during a party's opening arguments, but cautioned against reading too much into it. "What it tells me is that the arguments Oracle presented in its trial briefs resonated with the judge at least enough to raise those questions with him," said Paul Friedman, a partner and co-chair of the anti-trust group at the law firm Dechert. The government should take note of the questions and be sure to address them as it presents its case, he said.
"As a litigator, although it throws you off balance, you should welcome that, because now you know what the judge's questions are," he said. The opening arguments got underway slightly later than planned, at about 9.30 a.m Pacific Time, and wrapped up by about 11.30 a.m. Each side now has two weeks to present its case, starting with the DoJ.
The judge moved on swiftly to the first witness for the DoJ, a representative from Cox Communications, who was expected to testify about the cable company's software needs and the nature of the buying process.
Regardless of the outcome of the case, Oracle's acquisition bid faces other hurdles. It still needs a green light from the European Commission, which is investigating the merger and has listed several concerns about it. Oracle must also secure backing from PeopleSoft's shareholders, who so far have shown little enthusiasm for the deal.