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How Oracle Beat Justice in Court

Daniel M. Wall fought the law, and Daniel M. Wall won. A litigation partner at the giant law firm Latham & Watkins, Wall was Oracle's (ORCL) lead lawyer in last summer's antitrust fight with the Justice Dept. By now, most tech watchers know the story by heart: The trustbusters tried to stop Oracle's hostile takeover of rival software maker PeopleSoft on grounds that combining the companies would be anticompetitive and cause prices for high-end business software to increase.

Oracle was the rare company that didn't turn tail and run when the feds weighed in. In a month-long trial before Judge Vaughn Walker in U.S. District Court in San Francisco, Wall dissected Justice's case, and ultimately won. Last month, Oracle closed the deal for PeopleSoft and ended an 18-month takeover battle that cost the Silicon Valley software giant, by some estimates, more than $100 million in legal fees. BusinessWeek Online Technology Editor Jim Kerstetter, who covered the trial, recently caught up with Wall. Following are edited excerpts of that discussion:

Q: How many people did you have working for you on the Oracle case?

A: Depends on how you want to count. The core team, mostly based here in San Francisco, was about 35 lawyers and paralegals at the height of it, which is a huge team.... The total number of people who were involved at one time or another was probably two or three times that. But a lot of those people were for maybe just a few hours, maybe to serve a subpoena on someone or help out with some documents.

Q: Speaking of subpoenas, you certainly shook up people in the software industry with some of the documents you were asking for.

A: It's a dynamic of a case like this that the parties who have the documents you need aren't parties to the litigation.... Here you had quite a few companies that were in the role of suppliers of software, potential competitors that you had to analyze, the system integrators, and the sort of advisers and middlemen in the business who have a knowledge in the industry.

And then you had, of course, the customers. And the government was from Day One clearly going to make customer testimony the heart and soul of its case and had identified customers who would have favorable testimony, so we had no choice but to run out and try to get the source materials for whatever the truth is. You obviously can't put yourself in the position of just taking these people's word for it. They have a variety of interests in this, the most common one was they had millions of dollars invested in PeopleSoft software that they were worried about. So you have to do that, and you're right: It ruffled a lot of feathers out there.

Q: You dropped a few bombshells in the courtroom, of course, the biggest being the Microsoft-SAP merger talks. How did you uncover that?

A: I did know about it for a long time before it came out. When the government first turned over documents to us, a substantial number of documents were materials they had received from various companies. They were going to give us copies of theirs, except that Microsoft (MSFT) wanted to give us essentially a new set of the same documents.

Because of that, they actually were the first documents we received in this case. And several us were notified that they came in, went down to the 15th floor of our building here where we had our war room, and started rummaging through the boxes to see what was there and immediately, Project Constellation [Microsoft's code name for the SAP (SAP) talks] popped up.

It was a moment that I will never forget. It was the largest possible thing that could happen in this industry. And there it was. At that point, it was an active deal -- they later went their separate ways. It was accompanied by an enormous amount of analysis of the industry we were studying. So it was a treasure trove in two respects: The event itself, but then all of the analysis that went with it.

It was extremely favorable to us. It was much more consistent with our view of these markets than the government's view.

Q: Did Microsoft fight to keep that out of court?

A: Oh, absolutely. There were a number of private sessions with the judge to talk about the sensitivity of these documents. And I never resisted for a moment the sensitivity of these documents. I can remember vividly being in Judge Walker's chambers, and Microsoft's lawyer had argued how sensitive they were. Judge Walker turned to me and asked if I thought they were sensitive. I laughed and said: "Judge, these are the most sensitive things I've ever seen. And I don't want to be the one who reveals it to the world. Let's be clear. We're all on the same page here."

Q: But you had to introduce those documents in court.

A: That's why [Microsoft] announced it before the first day of trial. They knew there was no force on Earth that was going to stop us. We made it clear that once the trial started, it was going to be a public trial, and there weren't going to be a lot of secrets in it. And so I had it in my opening statement to raise. One way or another, Microsoft knew we were going to raise it, so they preempted it that morning.

Q: What did you think of Justice's case?

A: I thought they had a strong opening move. But once we responded, they didn't have a lot of strong counters. What I mean by that is from the time even before the case was filed and I was trying to figure out if we could win or not, it was pretty apparent to me that the Justice Dept. would have no trouble at all putting on a bunch of witnesses who would say that if you are a big multinational company, the three best choices were Oracle, SAP, and PeopleSoft. They would get the first serve in and it would be a good serve.

The problem was that we would have a good return, which was, "Yeah, but there's lots of big companies using other software companies, too." I don't think they had very many good shots after that. They didn't have a real solid answer for why it was if these were the only three games in town that the likes of Johnson & Johnson (JNJ) and McDonald's (MCD) and Justice itself were turning to other companies.

And I really don't think that throughout a month of trial they ever really figured out what to do with that. Not that I would have done anything better with it if I were in their position. It was just a difficult fact for them, and failing to provide a really good explanation that was consistent with their theory of the case, I think, laid the foundation for the result.

Q: Let's turn that around. What was the weakest point in your case?

A: I think companies tend to fixate on just a few competitors that they define the world around, and they benchmark themselves against that. And Oracle was no different. SAP was the big dog in town. PeopleSoft was right across the bay. From an internal standpoint, there was a lot of evidence of how much we fixated on PeopleSoft and SAP. I think that we were able to overcome that.

But looking at it from a practical matter, I can tell you I'm looking at two or three deals now, and every one of them has the same phenomenon -- that the companies tend to focus their marketing and strategic thinking around a very small number of competitors.

Q: That's true. But some of Oracle CEO Larry Ellison's more provocative comments early on in the takeover fight must have presented some challenges to you.

A: Let me give you a great example of that because it's certainly true, and the one that I'll cite is, "Best-of-breed only works in dog shows." Justice played it constantly. That's a line where he lampoons the best-of-breed solution as an alternative to a suite like you can get from Oracle or SAP. My response is, "If he's not concerned about best-of-breed, then why does he have a shtick about it?"

Q: That said, did you hesitate to put Larry on the witness stand?

A: Not at all. A lot of people have asked me that. Larry Ellison is one of the most articulate spokesmen of his view of the world that you can find. He's the vision guy at Oracle. And this deal was all about vision. He was the best person to tell that story to Judge Walker.

That was the main thing I wanted him to do. I wanted him to get up there and say, "This is why I want to buy this company. It's not about jacking up the price to customers. It's about retaining the PeopleSoft customers. It's about competition from Microsoft and others in the future," and he's the guy who has to tell that.

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