It was a little more than a year ago and PeopleSoft Inc. was celebrating. The software maker had pulled off a $1.7 billion bid for competitor J.D. Edwards & Co., a combination that created the world's largest enterprise-applications vendor after SAP.

Then Oracle stepped in. Oracle had been No. 2 and didn't like being third, so it began an aggressive campaign less than two weeks after the PeopleSoft and J.D. Edwards deal. Oracle chairman and CEO Larry Ellison made a $5.1 billion hostile bid for PeopleSoft. CEO Craig Conway rebuffed Ellison's advances, creating the kind of bitter battle that the software industry simultaneously loves and dreads.

Ellison can be excused if he was surprised by the fight in PeopleSoft CEO Craig Conway. Conway has resisted every volley and invitation from Ellison, prompting Ellison to repeatedly increase his bid in an effort to steal shareholder support from Conway.

Compared with the brash Ellison, Conway has always appeared rather mild-mannered. Yet he has demonstrated an assertive, persuasive, and tenacious leadership instinct. Over the last year, he has accused Oracle of "atrociously bad behavior" and of having "predatory intentions." So far, at least, he has been able to convince a majority of shareholders that nothing good would come of this takeover.

Ellison has told industry analysts that he is offering PeopleSoft shareholders a "much safer road" than independence. In fact, Ellison claims that Conway approached him a year ago to discuss a merger. PeopleSoft's official response is that its execs proposed buying Oracle's applications business.

Now Oracle is going up against the Department of Justice. In March, it judged the buyout to be harmful to the marketplace and subsequently filed a civil lawsuit to prevent the deal. The department spent months interviewing Oracle and PeopleSoft employees and customers, doing market assessments, meeting with other similar vendors, and poring over relevant documents. It maintains that the takeover would leave just SAP and Oracle in the application-software market, resulting in decreased competition, higher software prices, and stalled innovation. PeopleSoft couldn't have been happier with that position.

Seven states joined with the Justice Department in the suit, which is before U.S. District Court Judge Vaughn Walker in San Francisco. The nonjury trial is expected to last at least a month.

After months of interviews with Oracle and PeopleSoft employees and customers, market assessments, meetings with other similar vendors, and poring over relevant documents. Seven states joined with the Justice Department in the suit, which is before U.S. District Court Judge Vaughn Walker in San Francisco. The nonjury trial is expected to last at least a month.

Undaunted, Oracle promised to vigorously challenge the suit. It had, after all, just made its latest offer, valued at $9.4 billion. An Oracle spokesman said at the time that the suit was "inconsistent with the overwhelming evidence of intense competition in the markets we serve."

Oracle filed a written response to the government's suit saying its proposed buyout of PeopleSoft would foster competition by helping Oracle to better compete with SAP and numerous other rivals. It also claimed that a combined Oracle and PeopleSoft could better compete with Microsoft, which, it said, is "aggressively expanding its position in enterprise-applications software." To date, Microsoft has only been a force in enterprise applications for small businesses.

Three years ago, it bought two accounting-software companies, Great Plains Software and Navision, and, last year, it rolled out a customer-relationship-management app. Microsoft's Business Solutions Group continues to grow, and it is expected that Microsoft will move up the market to butt heads with Oracle, PeopleSoft, and SAP.

In fact, shortly before the trial got under way last week, Microsoft and SAP disclosed that they had talked last year about merging—a fact that Oracle is expected to use as proof of ongoing and healthy competition. Microsoft released a statement saying that the negotiations ended without an agreement "due to the complexity of the potential transaction and the subsequent integration." The company has no intention of resuming the talks, according to Microsoft.

Even as Oracle argues its case, Ellison continues to adjust his bid. In mid-June, it was offering $21 a share, lower than its previous offer of $26 a share. That bid, too, was rejected.

At this stage, at least, the price is a moot point. The next move appears to be Judge Walker's.