Antitrust Argument Against Oracle Won't Be an Easy Sell

Connecticut's attorney general got the market's attention when he announced his intention to file an antitrust suit against Oracle (ORCL) on Wednesday. But he'd better enjoy it while he can. Making the case stick won't be easy.

"It sounds as though Connecticut's criticism is that, as a customer, the successor to his supplier is not as desirable as the one he has now. That's a fair concern for a customer to raise, but it's not an antitrust issue. It's a matter of contract rights," said Emmett Stanton, an antitrust specialist and partner in the Silicon Valley law firm of Fenwick & West.

State officials said an Oracle takeover of PeopleSoft (PSFT) would create an "enormous and expensive upheaval" of Connecticut's ongoing conversion of its computer system, known as Core-CT. The $100 million conversion is based on software purchased from PeopleSoft under a five-year contract signed in 2002.

"Oracle is threatening to force its products on consumers by illegally seizing a key rival and thus amassing market dominance," said Attorney General Robert Blumenthal.

And in its complaint to be filed with the U.S. District Court in Connecticut, the AG's office claimed that the Oracle-PeopleSoft merger would lead to an overly concentrated market in some forms of software. But an industry analyst, using the same analytical tools, wrote last week that a merger of the two companies would fall short of the antitrust warning level.

There's no doubt that a combined Oracle/PeopleSoft would be a formidable force in the software applications market. After all, Oracle is the dominant database provider and PeopleSoft is the leading provider of human resources software.

And it's quite likely that some of PeopleSoft's current customers would be unhappy in the hands of Oracle. The merged company would continue to support PeopleSoft customers for some time, but would not continue to develop or sell PeopleSoft applications. Ultimately, customers would be forced to migrate to Oracle's much less popular applications or go through the pain and expense of finding a new vendor.