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As Oracle Corp.’s legal defense of its hostile tender for PeopleSoft Inc. enters its final few days, the software giant on Monday called a key witness from Lawson Software Inc., president and CEO John Coughlan, to bolster its argument that the smaller company is a significant rival in the market for high-function business software. Lawson, the fourth-largest provider of human resources and financial management software, has been portrayed throughout the past three weeks of the trial by the government as a weak alternative for large, complex companies seeking these kind of software applications. This would support the Department of Justice’s contention that an Oracle-PeopleSoft combination would leave few attractive choices for customers in this market, reducing competition and enabling the merged company to raise prices. Oracle, however, has painted a picture of the St. Paul, Minn.-based company as a strong and competitive rival to itself and PeopleSoft. This view was supported by Lawson chieftain Coughlan, who took the stand for Oracle. Lawson has attacked large enterprise accounts since at least 1996, when it began to focus on vertical market segments including healthcare and the public sector, Coughlan said. On almost every account it competes for, Lawson runs into PeopleSoft, he added. The notion that his company only caters to midtier software customers, as the Justice Department has argued, is a misconception, he said. “Our issue was more perception than anything that had to do with the scalability of our product,” Coughlan said. Oracle lawyer Gregory Lindstrom then trotted out a list of Lawson customers with billions of dollars in estimated revenue and tens of thousands of employees in various vertical industries. Lawson, Coughlan said, uses a focus on particular markets as a means of differentiating itself from rivals. In the retail sector, for example, Target Corp., with $48.1 billion in estimated annual revenues, runs Lawson financial management software, Coughlan said. Other examples include HCA Inc., described by Coughlan as the largest healthcare provider in the world with over $20 billion in annual revenues. The company, which runs Lawson procurement software, is rolling out its human resources offering and is set to implement the financial management applications, the executive said. In addition, eight of the Federal Reserve System banks run financial applications from Lawson; all 12 are expected to be doing so by fall, Coughlan said. Moreover, Lawson beat out PeopleSoft for the human resources software business of TIAA-Cref, the retirement services provider for educators that has revenue of roughly $17.8 billion and employs 6,500, according to Lindstrom. The lawyer also attempted to use Coughlan’s testimony to undermine some of the government’s key testimony from University of Virginia economics professor Kenneth Elzinga. The lawyer displayed a chart from the antitrust expert’s testimony that estimated market shares for high function financial management software, defined as deals that brought in more than $500,000 in license revenue. The chart ranked SAP AG, PeopleSoft and Oracle as the top three providers in this area, but did not mention Lawson. “Any question in your mind that Lawson should be on that chart”? Lindstrom asked. “We should be, and I have no idea why we are not,” Coughlan said. Lindstrom made a similar point with Elzinga’s ranking of high-function human resources management software. Lindstrom argued several Lawson deals should have made Elzinga’s chart, including a financial management software licensing pact with Louisiana Pacific Corp. Roughly 20 Lawson transactions in this area were for more than $500,000 in license revenue, Coughlan said. In the cross examination, government lawyer Claude Scott attempted to portray Lawson as a hobbled, bumbling competitor that at one point in its recent history was “living off its maintenance revenue.” While Coughlan disagreed with this characterization, he did acknowledge that his company started a sales program after Oracle’s hostile tender offer was announced last year that aimed to win PeopleSoft customers who were worried about the uncertainty of the potential acquisition. The campaign did not win over any PeopleSoft customers, Coughlan admitted. Scott also produced a Lawson document which described a complaint from MasterCard International regarding the company’s software. Problems with Lawson’s payroll application caused the paycheck of MasterCard’s CEO to be miscalculated, the document said. Scott produced several other documents in an effort to portray Lawson as a company that had difficulty in satisfying the requirements of large customers. For example, an internal Lawson document showed that Hyatt International had been “frustrated” with Lawson in part because it did not have the capabilities to support the hotelier’s international operations. During Scott’s cross examination, yet another of the mounting number of merger talks between software vendors was revealed. Coughlan said that Oracle executives had talked with Lawson about acquiring the smaller company in 2002. Oracle had said it was interested in Lawson’s strong mid-market footprint, Scott said. However, when asked if he would consider resuming these talks should the PeopleSoft deal be blocked, Coughlan responded with an emphatic “No.” In the afternoon, Oracle called Massachusetts Institute of Technology professor Jerry Hausman, its key economic witness. Hausman argued that the government defined the market Oracle and PeopleSoft operate in too narrowly, in both a geographic sense and with regards to competition facing the two companies. He said the market for high-function financial services and human resource management software is a global one, and is not restricted to the United States, as the Justice Department has argued. The professor argued that if the U.S and worldwide markets were truly different, one would expect software vendors to use different pricing schemes here versus around the globe. But that is not the case, he said, noting that in the United States PeopleSoft’s average discount given to customers is 45.2 percent, while outside U.S. borders it is 45.1 percent. Additionally, the government excluded internally developed applications, outsourcers and so-called point-solution vendors as alternatives for enterprise software customers. “Both the DOJ … and Elzinga have incorrectly applied market definition principles,” Hausman said. Attempting to counter another key Justice Department argument, he said Oracle gobbling up PeopleSoft would not increase the ability of the remaining main players — Oracle and SAP, under the government’s assumptions — to price discriminate, or charge more to certain customers they know need more powerful applications. Price discrimination is countered by ensuring there are enough rivals in the market that suppliers are forced to offer the best price even to customers that need their products the most. But in most deal negotiations Hausman studied, only two companies are really considered as final vendor candidates by software buyers anyway. “It is not possible to assess the customer’s willingness to pay with the accuracy that is required to make attempted price discrimination a profitable strategy,” he said. Oracle said it plans to rest its case by today or early Thursday, in part because it dropped plans to call PeopleSoft CEO Craig Conway to the witness stand. Conway, who was slated to be questioned this week by Oracle lawyers for up to six hours, was no longer needed to bolster the defense’s case because “we got what we needed from Wilmington,” lead Oracle lawyer Daniel Wall said, referring to PeopleSoft executive vice president Phillip Wilmington. Wilmington testified during the second week of the trial on behalf of the government. But in a four-hour cross examination, Lindstrom confronted the senior sales executive with several internal PeopleSoft documents that imparted a degree of concern for competition from several midtier players, including Lawson. The Justice Department has argued that companies in this part of the market do not compete for software contracts with large, complex enterprises. PeopleSoft spokesman Steve Swasey described the cancellation of Conway’s testimony as a disappointment. “It is unfortunate he’s not going to be able to give the viewpoint of the customer from a CEO’s perspective,” Swasey said. Copyright �2004 TDD, LLC. All rights reserved.

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