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Daniel M. Wall’s cruise through the Panama Canal in late January 2004 was so relaxing that it began to border on dull. Then he checked his e-mail. A message requested that he call Oracle Corp.’s general counsel. Curious, Wall hustled to the phone. Would he be interested in defending the world’s No. 3 business-applications software company in an antitrust suit brought by the U.S. Department of Justice? Absolutely, he replied. Asked what intrigued him, he chuckled. “That’s a little bit like asking a sports-car enthusiast what’s appealing about a Ferrari. I really do think, for an antitrust lawyer, there’s nothing bigger than a government prosecution,” said Wall, a partner in Latham & Watkins’ San Francisco office. And the defense mounted by Oracle rose to the occasion. Deft lawyering by Wall and two colleagues who dubbed themselves “the three-headed monster” cleared the path for Oracle to acquire rival PeopleSoft Inc. in what ultimately became a $10.3 billion deal. United States of America v. Oracle Corp., No. C-04-0807 VRW (N.D. Calif.). For crafting a defense effective enough to persuade a federal judge and the best of the government’s antitrust lawyers, the Oracle case is The National Law Journal‘s choice for top defense win of 2004. ‘ATROCIOUSLY BAD BEHAVIOR’ Nearly all antitrust suits involve two companies that want to merge over objections of the Justice Department’s Antitrust Division. That was hardly the case with Oracle and PeopleSoft. Though Oracle was determined to make the acquisition, PeopleSoft just as resolutely rejected its advances. Oracle made its $5.1 billion tender offer for PeopleSoft in June 2003, only a few days after PeopleSoft spent $1.7 billion to acquire another software rival, J.D. Edwards. The acquisition put PeopleSoft in the No. 2 position for business-applications software — programs that manage customer service, accounting and human resources duties — behind only SAP A.G. of Germany. Nipping at PeopleSoft’s heels was Oracle. PeopleSoft CEO Craig Conway decried Oracle’s move and its timing as “atrociously bad behavior.” His company touted its anti-takeover “poison pill” measure to make the acquisition more difficult and more costly. Undeterred, Oracle sued to have it overturned, and Oracle CEO and founder Larry Ellison upped his offer several times. The government filed suit in San Francisco federal court in late February 2004 to stop Oracle. The lawsuit claimed that the proposed acquisition would violate Section 7 of the Clayton Act by quashing competition. An Oracle-PeopleSoft merger would result in higher prices for software used by larger clients for human resources management and financial management services, the suit said, because Oracle, PeopleSoft and SAP had a virtual lock on that $22 billion market. In most cases, the mere filing of an antitrust lawsuit is enough to alter a company’s acquisition plans. More than 90 percent of such cases are settled without a trial, either because proposed mergers are abandoned or are resolved to the government’s satisfaction. But Oracle’s Ellison, an ardent yachtsman who nearly lost his life in a typhoon off the Australian coast in 1998, is not accustomed to backing down from anything. When Ellison’s company wanted to fight an antitrust case, it chose Latham & Watkins’ San Francisco office. With less than four months to prepare for trial, the firm quickly assembled a team of about 35 attorneys and paralegals. A trio of seasoned trial lawyers — Wall, J. Thomas Rosch and Gregory P. Lindstrom — spearheaded the defense. Wall, who had experience as an antitrust attorney for the government, directed strategy. Lindstrom oversaw Oracle customers and competitors and Rosch handled Oracle witnesses. A ‘MISTAKEN PROSECUTION’ The defense strategy was both destructive and affirmative. “It was very important to portray this as a mistaken prosecution,” Wall said. “[The government] had overlooked fundamental things and made fundamental errors.” Among those errors, the defense would contend in trial, were that customers had more choices for software vendors than the government claimed and that the government’s assertion that less competition guarantees higher prices was flawed. There was a little lucky break, too: “The Justice Department inadvertently gave us quite a gift when they bought software from a competitor [American Management Systems] they said did not exist in this market,” Rosch noted dryly. That tidbit found its way into Oracle’s opening statement. Wall’s defense also explained Oracle’s ferocious determination to acquire PeopleSoft. As Ellison would testify to a packed courtroom, the merger would help ensure Oracle’s viability. “The government thought the merger was terrible,” Wall said. “We saw it as evolutionary, what a company had to do to survive.” Despite their carefully plotted strategy, the defense team was afraid it was starting at a disadvantage. Because the government doesn’t usually bring antitrust cases it doesn’t expect to win, Wall feared “the court would essentially defer to their judgment. So that’s why we did some in-your-face things that wouldn’t have gone over well on a personal level with the Justice lawyers. We didn’t want it to be a close case. … From the very beginning, we tried to portray the government as not having come to grips with deficiencies in their theory.” They did not expect their arguments to be lost on the judge, Vaughn R. Walker. Walker, the chief judge of the U.S. District Court for the Northern District of California in San Francisco, knew antitrust law from his days as a lawyer. And making their case to a judge instead of a jury was appealing. “You can shoot at a very high level in terms of subtlety and sophistication of the arguments you make. … Juries don’t get subtleties,” Wall said, “so trials become morality plays.” The government built its case on the testimony of more than a dozen diverse software customers, including Verizon Communications Inc. and Neiman Marcus Group Inc. They testified that competition between Oracle, SAP and PeopleSoft kept prices lower and encouraged innovation. Oracle’s lawyers sought to secure their edge early, doing damage during the Justice Department’s case in chief. “They had the burden of proof that the relevant market was a market in which there were only three sellers,” Rosch said. “I felt from the get-go that if we were able to demonstrate to Judge Walker they failed to carry the burden of proof on that one fundamental issue, we would win the case.” ‘SOPHISTICATED BUYERS’ Witnesses included large businesses that used software from competitors of Oracle, PeopleSoft and SAP. “We wanted to show that the customers were extremely sophisticated buyers who were not going to be anyone’s victims,” Wall said, “and they were fully capable of looking after their own interests.” Rosch said Wall’s most important tactical call was to shore up the defense’s case with competitors’ documents. That included notes from Microsoft Corp. revealing secret merger talks with SAP — a revelation that bolstered Oracle’s case by showing that Microsoft was eyeing a market that the government claimed was dominated by other players. That surprise played nicely into Lindstrom’s theme that competition in the business-applications market was far more complex than the government had portrayed it. Walker issued his 164-page opinion in early September 2004. In handing a stunning win to the defense, he came down hard on the Antitrust Division. The government failed to meet its burden in every way, he wrote, from defining the market at issue to showing that price increases would result from the merger. Testimony from government witnesses was “flawed and unreliable,” and evidence was “devoid of any thorough econometric analysis,” the judge said. Oracle’s victory marked the first time in at least two decades, if not ever, that a defendant who made a hostile tender offer prevailed against the U.S. Department of Justice, Wall said. Thomas O. Barnett, deputy assistant attorney general for the Antitrust Division of the Justice Department, said the decision might have gone differently had someone else been on the bench. “While we respect his role in this case, this particular judge applied his view of antitrust law to his particular view of the case,” Barnett asserted. No appeal was filed. The rare loss for his division will not prompt it to alter its strategy for similar litigation. “We don’t see any fundamental need to change our approach,” Barnett said. Rosch agreed, saying the government made no critical missteps. “I think it was more a triumph of the client,” he said, “than it was any kind of deficiency of the government’s case.” About a month after the verdict, antitrust regulators in the European Union gave their blessing to Oracle’s plans. PeopleSoft’s board of directors approved the merger offer by year’s end. Today, Oracle is the world’s No. 2 business-applications software company, second only to SAP.

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