Oracle moves to blunt Microsoft testimony

The database giant distributed the paper to reporters in advance of testimony from Microsoft executive Doug Burgum, a witness for the U.S. Justice Department scheduled to take the stand Wednesday in the Oracle antitrust case in U.S. District Court here. The Justice Department is trying to block Oracle's proposed takeover of PeopleSoft.

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Burgum is expected to support the government's argument that Microsoft mainly supplies financial and human resource systems to midsize companies and has no immediate plans to sell those programs to large global corporations. Oracle's white paper is meant to demonstrate otherwise.

Microsoft and its business plans have become a central issue in the trial. The Justice Department says the market in question is largely limited to just three competitors--Oracle, PeopleSoft and SAP. With PeopleSoft absent as a rival, Oracle and SAP would face less competitive pressure to restrain prices and keep up the pace of innovation, the government charges.

Oracle contends that the Justice Department has overlooked a number of other important rivals, including Microsoft. The debate over Microsoft's role intensified at the beginning of the trial, when the software powerhouse said that it had approached SAP last year about a merger.

The Oracle white paper was prepared by the company's attorneys in January for the Justice Department during the agency's review of the PeopleSoft bid, which Oracle launched last year.

Going head-to-head
Of the 94 deals in which Oracle faced Microsoft as a rival, eight were for contracts with large, complex businesses--the kind of companies the Justice Department says could be harmed by an Oracle-PeopleSoft merger. Among those eight were a division of Honeywell, an international unit of Praxair, and Medical Mutual of Ohio. Microsoft also counts Xerox and Vodafone among its business applications customer, according to the white paper.

The white paper highlights public comments made by Microsoft executives regarding their anticipated "head-on collision with Oracle" in the business applications market. It also calls out Microsoft's enormous research investment in so-called back-office applications. Microsoft plans to spend $2 billion a year over the next five years on expanding its presence in the market, more than twice the amount SAP and Oracle each spend annually on research and development, the paper notes.

"Microsoft is at once a competitor, re-positioner and committed entrant in the putative market hypothesized by the (Justice Department) staff," the white paper states. "In all three capacities, it acts as a constraint on the exercise of any market power that might otherwise result from the combination of Oracle and PeopleSoft."

The government is expected to rest its case tomorrow after Burgum's testimony. The non-jury trial, which began more than two weeks ago in San Francisco, is expected to conclude on July 2.

Oracle launched its effort on Tuesday with testimony from Tom Campbell, the dean of the University of California's Haas School of Business. Campbell testified that purchasers of business systems have enormous bargaining power and can induce suppliers to drop prices regardless of the number of competitors bidding for contacts.

For instance, buyers can decide to delay a purchasing decision and continue using their current software, Campbell said.

Campbell's comments contradicted earlier testimony from several Justice Department witnesses, including University of Virginia economics professor Kenneth Elzinga. Elzinga testified last week that PeopleSoft often induced Oracle to drop it prices when the two were competing for the same contract.

Among the Oracle witnesses scheduled to testify in the trial over the next two weeks are Oracle Chief Executive Officer Larry Ellison and his counterpart at PeopleSoft, Craig Conway. Also on the Oracle witness list are executives from Oracle rivals SAP, Lawson Software, Microsoft, Siebel Systems and IBM.