Lawyers for Oracle and the US Department of Justice presented their opening arguments yesterday in the government's bid to block Oracle's PeopleSoft acquisition.
DOJ attorney Claude Scott 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 Scott began speaking, Judge Vaughn Walker began asking 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.
Scott replied that other suppliers' products do not support the breadth of functionality required by large corporations, nor the languages and currencies used by multinationals, adding that the DOJ will call expert witnesses and customers who will testify to that effect.
"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 chief financial officer Jeff Henley, indicating that companies in the midmarket require a different type of product than large enterprises.
Oracle has argued that the DOJ's definition of the market is a fiction. 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 pretrial brief to define the market in question.
"There's an anecdote among antitrust lawyers that says, 'If it takes more than 10 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, arguing that 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.
Wall 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 does not 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.
Wall pointed to Microsoft having entered into discussions last year to merge with SAP, shortly after Oracle said it planned to buy PeopleSoft. Microsoft confirmed yesterday 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 antitrust 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 antitrust 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 added.
"As a litigator, although it throws you off balance, you should welcome that, because now you know what the judge's questions are."
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 have shown little enthusiasm for the deal.
James Niccolai writes for IDG News Service