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He didn’t buy the government’s arguments, and he didn’t believe its witnesses. In the end, Chief U.S. District Judge Vaughn Walker just didn’t like the government’s case. On Wednesday, Walker rejected the U.S. Department of Justice’s attempt to block Oracle Corp. from acquiring rival software maker PeopleSoft Inc. The decision is a major defeat for the government, which warned that the hostile takeover would be bad for business and bad for consumers, who it says would eventually bear the burden of decreased competition. Although PeopleSoft’s stock price rose almost immediately in after-market trading, the opinion doesn’t entirely clear the path for the takeover. Walker stayed his decision for 10 days to allow the 9th U.S. Circuit Court of Appeals to intervene. In a statement, R. Hewitt Pate, assistant attorney general in charge of the DOJ’s antitrust division, expressed the government’s disappointment and noted, “The department is considering its options.” But an appeal would be difficult, said Hastings College of the Law antitrust professor Ashutosh Bhagwat, calling Walker’s 164 pages “very thorough and very sophisticated. “It was never going to be an easy case. From the beginning it was clear that it was going to be a tough issue, and it was going to be controversial,” Bhagwat said. Bhagwat said the case turned on differing definitions of products and geographical markets. The government argued that the market consisted only of the United States, and that Redwood City, Calif.-based Oracle, Pleasanton, Calif.-based PeopleSoft and Germany’s SAP were the major players. Oracle argued the market was global. “Walker was not convinced [by the government],”said Bhagwat. “Once you lose the market definition fight, it becomes hopeless. It’s all about proving a substantial increase in concentration.” The government had faced an uphill battle from the beginning. Walker is well-known for his skepticism of government interference in business. As early as opening statements, in June, Walker attacked lead DOJ lawyer Claude Scott Jr., interrupting him and poking holes in his case. By contrast, Walker gave free rein to Oracle’s lawyer, Latham & Watkins partner Daniel Wall. So it went in Walker’s 164-page opinion, which the court released late Thursday afternoon, shortly after the online high-tech news service CNET released a story that cited anonymous court sources predicting Walker’s opinion would come out today. Walker didn’t just reject the government’s arguments; he also criticized DOJ lawyers for the way they put on their case. “Contrary to the characterization of plaintiffs’ counsel before trial, the court found the testimony of the customer witnesses largely unhelpful to plaintiffs’ effort to define a narrow market of high function [software],” Walker wrote. “Each of these witnesses had an impressive background in the field of information technology. And the court does not doubt the sincerity of these witnesses’ beliefs in the testimony that they gave. What the court questions is the grounds upon which these witnesses offered their opinions on the definition of the product market and competition within that market.” Walker said the customers’ testimony consisted largely of speculation and missed an important point necessary to prove the government’s case. “There was little, if any, testimony by these witnesses about what they would or could do or not do to avoid a price increase from a post-merger Oracle,” Walker wrote. The judge said the government missed an opportunity to put a “human face” on the injury to competition alleged by the government. “Unsubstantiated customer apprehensions do not substitute for hard evidence,” Walker wrote. Bhagwat, the antitrust professor, said the Oracle case, combined with the DOJ antitrust action against Microsoft, “suggests the government is going to have a hard time convincing the courts to adopt ambitious theories” of antitrust claims. Although the government got a district court to agree with its theory about Microsoft, the court would not fully implement the government’s remedy, Bhagwat said. “The courts are just not that open to aggressive antitrust claims. Everyone knows it’s true. These two cases are just proof,” Bhagwat said. The Oracle trial lasted for about a month, and Walker issued his decision in several weeks. The government’s action, U.S. v. Oracle, 04-0807, was filed in February, after a yearlong investigation into Oracle’s hostile takeover bid. The government alleged the merger would violate the Clayton Act, which outlaws monopolistic business practices. Several states joined the DOJ’s suit, including Texas, New York and Michigan, but California opted to stay out.

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