July 02, 2004
Trial Presents Contrasting Views Of Tech Industry
SAN FRANCISCO (AP) -- Is Oracle Corp. a vile bully plotting to gouge some of the country's largest companies, or are antitrust regulators just narrow-minded simpletons who can't grasp the high-tech industry's rapidly changing dynamics?
That's the central question underlying all the turgid tech jargon dominating four weeks of testimony that wrapped up Thursday in a pivotal trial contesting Oracle's $7.7 billion bid for rival business software maker PeopleSoft Inc.
It's up to U.S. District Judge Vaughn Walker to determine the answer. After listening to closing arguments in the case July 20, Walker is expected to issue his decision in August or September.
Although the trial revolved around Oracle's hostile bid for PeopleSoft, the legal showdown covered a lot more ground.
The evidence provided a rare look at the machinations of Microsoft Corp. and IBM Corp. when those two high-tech heavyweights are threatened. Microsoft considered making a direct investment in PeopleSoft to help thwart Oracle while IBM talked generally about buying defensive investments in software makers, ideas that suggest the tech giants still might come to PeopleSoft's rescue if Walker doesn't block the bid.
Other documents and testimony revealed that Oracle has drawn up a shopping list of other takeover targets that include BEA Systems Inc., Siebel Systems Inc., and Business Objects.
The roughly 800 trial exhibits and 100 hours of often complex testimony offered two starkly different conclusions about Oracle's relentless pursuit of PeopleSoft.
From the government's perspective, Oracle's bid is a thinly disguised attempt to wipe out a major competitor so it can raise prices on an elite group of customers while spending less money on product improvements.
Oracle ridiculed the government's view as shortsighted and illogical. The company depicts its PeopleSoft bid as a vital move needed to counter the market muscle of Microsoft and IBM in a constantly evolving industry likely to demand even lower prices and greater innovation.
Both sides believe they proved their respective points.
"We feel very good about the way the case has come in," said Thomas Barnett, a deputy assistant attorney general for the Justice Department. "I don't think any of the witnesses in this case supported the idea that this would be a better market without PeopleSoft in it."
Oracle attorney Daniel Wall believes his team "ran the board ... We proved everything we set out to prove in our opening statement."
The case revolves around a small sliver of the huge market for business applications software--the computer coding that automates a wide range of administrative jobs in corporate America. The Justice Department focused its antitrust claims on software that handles financial and personnel management tasks at large U.S. companies with far-flung and diverse operations.
Customers in this segment spend about $500 million on software and product maintenance, according to the Justice Department. Estimates on the overall business applications market range between $20 billion and $40 billion.
The government says the so-called "high-function" niche is dominated by Oracle, PeopleSoft, and Germany-based SAP, making it essential that the three rivals remain independent to preserve the competition that drives down prices and inspires technological advances.
Oracle contends the Justice Department oversimplified a complex equation.
Because corporate computer systems are becoming increasingly intertwined, Oracle argued the market can't be properly assessed without considering the broader technology "stack"--a platform that includes specialty software vendors, contractors and, most significantly, Microsoft and IBM.
Although neither Microsoft nor IBM say they plan to compete in the high-function software market, the trial evidence showed the two companies are uneasy about the prospect of Oracle buying PeopleSoft. Both Microsoft and IBM are worried the combination might hurt their sales of database software and other components in the so-called technology stack.
The hostile bid prompted Microsoft to initiate takeover talks with SAP--a combination that might have cost more than $60 billion to pull off. Microsoft called off the discussions earlier his year, and now says it has no interest in buying SAP.
Microsoft chairman Bill Gates also considered buying a minority stake in PeopleSoft to thwart Oracle, according to a June 2003 E-mail released in the trial. It's an idea that seemed to intrigue PeopleSoft CEO Craig Conway, according to another E-mail submitted as evidence. The same E-mail also suggested Conway might approach IBM about a buying a stake in his company.
In its own internal documents, IBM indicated it might explore buying "blocking stakes" in software makers to prevent takeovers threatening the company's competitive position. The IBM documents didn't mention specific software makers.
The behind-the-scenes discussions of both Microsoft and IBM both underscore the companies' distaste for Oracle and its provocative CEO, Larry Ellison.
While considering its SAP takeover, Microsoft assigned Oracle the code name "Ophiuchus," which means "the serpent holder."
If Oracle takes over PeopleSoft, IBM said it would consider a marketing campaign designed to create "FUD"--fear, uncertainty, and doubt. The tag line of the IBM's hypothetical counterattack would be: "Do you really want your company's business requirements on Larry Ellison's shoulders?"
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