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.

But proving that the combined company would have an unfair competitive advantage would require showing that it has a market share of more than 50% or 60%, said Stanton. And that raises another question: market share of what?

PeopleSoft doesn't offer database software, and while Oracle has some strength in application software, it is far from a dominant player.

SAP ( SAP) is the leader in enterprise resource planning (ERP) software, applications for manufacturing, order entry, accounts receivable and payable, particularly for manufacturing companies, while Siebel Systems ( SEBL) holds the lead in customer relationship management (CRM) software, applications that manage call centers, sales force and marketing automation and so on. PeopleSoft's greatest strength is in software to manage human resources functions.

According to IDC, a market researcher, SAP's share of the ERP market is 18.1%, larger than the combined shares of Oracle, PeopleSoft and J.D. Edwards ( JDEC), which PeopleSoft hopes to buy in a friendly acquisition.

Connecticut's complaint alleges that the market for enterprise financial applications, enterprise human resources and enterprise software is already "highly concentrated" by the standards of the Herfindahl-Hirschman Index, a commonly accepted measure of market concentration used by the federal Justice Department and the Federal Trade Commission. A combined Oracle-PeopleSoft company would be significantly more concentrated, the complaint states.

Analyst Patrick Walravens of JMP Securities came to a different conclusion after he analyzed the combined market share of PeopleSoft and Oracle using the HHI. Walravens found that the HHI index for the combined company would be increased from 411 to no higher than 526, far below the threshold of 1000, the level at which the government says a market is concentrated.

"Our analysis suggests that the merger of Oracle and PeopleSoft results in an unconcentrated market, which ordinarily would not be challenged by the Agency," he wrote in a note to clients.

Connecticut's complaint did not give HHI numbers for each of the software markets. And it may be parsing the software market differently, excluding, for example, middle-market sales.

Late Wednesday, Oracle CEO Larry Ellison replied to Connecticut's complaint, saying in a letter: "It has never been our intention to force any customers to migrate to Oracle Applications. In fact, we have consistently said that we would extend PeopleSoft's current support deadlines, providing service through our much larger global support organization.

"We understand that maintaining your satisfaction as a customer is the key to the success of this transaction."

Walravens, whose company does not have a banking relationship with either company, noted that the government could look at another software segment, but it appears that other markets, including total software applications and CRM, would be even less concentrated.

Moreover, "PeopleSoft's antitrust arguments against Oracle are undercut by the fact that PeopleSoft itself is seeking to consolidate the number four player in the space, J.D. Edwards. It is very difficult for the number three player (PeopleSoft) to argue against being acquired by the number two player (Oracle) and simultaneously argue in favor of acquiring the number four player (J.D. Edwards)," Walravens added.

Still, antitrust litigation is no joke (just ask Bill Gates). It can drag on for years and Blumenthal is threatening to build a multistage coalition to cut the database giant down to size. This race is far from over.

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