WASHINGTON -- Federal antitrust enforcers opened a new front in their scrutiny of Microsoft Corp., investigating the software giant's alliance with Corel Corp. and another recent strategic investment, Wednesday's Wall Street Journal reported.
The investigation began in January even as Microsoft and the government prepared to argue the company's appeal of a federal court finding last year that it had repeatedly violated antitrust law.
In a civil subpoena served on Microsoft three weeks ago, the Justice Department demanded all internal documents on the software company's $135 million investment in Corel (CORL) last October, lawyers briefed on the case said. Corel, which is based in Ottawa and is best known for its WordPerfect and CorelDRAW programs, recently reported a fiscal fourth-quarter loss on declining sales.
The Justice Department is looking into whether Microsoft's (MSFT) stake in Corel could reduce competition in the market for office software packages that include word processing, spreadsheets and graphics, where Microsoft Office dominates with a market share of more than 90%. Corel's WordPerfect Office software is important for competitive reasons as it is also available in a version based on Linux, a computer operating system that competes with Microsoft's Windows.
A Justice Department spokeswoman said, "We are looking at the transaction," but declined further comment. A Microsoft spokesman said the company is cooperating with the Justice Department and that the investigation is narrowly focused. He also said the deal doesn't raise legal issues and that Microsoft expects it to proceed unhindered.
The new round of government scrutiny could offer an early test of the Bush administration's approach toward Microsoft. While the latest review was initiated by career Justice Department staff who will remain in place, the subpoena was signed by Douglas Melamed, a Clinton appointee who became antitrust chief after Joel Klein resigned from the post last year.
Mr. Melamed's likely successor, Washington antitrust lawyer Charles James, hasn't been formally named by the White House. In his few public comments on the Microsoft case, he has expressed skepticism about the wisdom of an outright breakup of Microsoft, saying it might harm consumers. But he hasn't said he would drop the case. Indeed, he is widely expected to await the appellate court's ruling before taking action on the case. The Justice Department also has been looking into Microsoft's pending $1.1 billion buyout of Great Plains Software Inc., a maker of business-accounting programs. The Great Plains inquiry began as a routine review under the Hart-Scott-Rodino merger act, but has raised fewer competitive issues than the Corel investment because there are few direct overlaps with Microsoft products. Both inquiries were assigned to the Justice Department's San Francisco field office, which handled the landmark 1998 Microsoft antitrust case that is under appeal.
The Corel investigation was unexpected because, unlike Great Plains, the deal wasn't subject to an automatic review under the federal merger law. While such transactions are sometimes reviewed, Microsoft structured its investment of 24 million convertible shares so that it didn't include voting rights in the company's management.
As part of the Corel review, officials have sought documents from Borland Software Corp., a person close to the Scotts Valley, Calif., company said. Borland, once a fierce rival, last year accepted a $100 million licensing deal from Microsoft.
Shortly after Microsoft made its investment, Corel said it would leave the market for Linux operating-system software, raising additional antitrust concerns, lawyers briefed on the inquiry said. Federal officials also are examining terms of a contract in which Corel commits to develop software for Microsoft's new .Net Internet software initiative, before it writes similar programs for other operating systems, the lawyers briefed on the case said.
When Microsoft and Corel announced their relationship last fall, analysts said the deal might have been intended to shore up an ailing rival at a time when Microsoft's lawyers were arguing in the appeals court that the personal-computer software industry remained vigorously competitive. Microsoft dismissed the claim.
Meanwhile, the broader Microsoft antitrust case that was decided in the government's favor last year is scheduled to be heard by a seven-judge U.S. Circuit Court appellate panel here Feb. 26 and 27.
The investigation began in January even as Microsoft and the government prepared to argue the company's appeal of a federal court finding last year that it had repeatedly violated antitrust law.
In a civil subpoena served on Microsoft three weeks ago, the Justice Department demanded all internal documents on the software company's $135 million investment in Corel (CORL) last October, lawyers briefed on the case said. Corel, which is based in Ottawa and is best known for its WordPerfect and CorelDRAW programs, recently reported a fiscal fourth-quarter loss on declining sales.
The Justice Department is looking into whether Microsoft's (MSFT) stake in Corel could reduce competition in the market for office software packages that include word processing, spreadsheets and graphics, where Microsoft Office dominates with a market share of more than 90%. Corel's WordPerfect Office software is important for competitive reasons as it is also available in a version based on Linux, a computer operating system that competes with Microsoft's Windows.
A Justice Department spokeswoman said, "We are looking at the transaction," but declined further comment. A Microsoft spokesman said the company is cooperating with the Justice Department and that the investigation is narrowly focused. He also said the deal doesn't raise legal issues and that Microsoft expects it to proceed unhindered.
The new round of government scrutiny could offer an early test of the Bush administration's approach toward Microsoft. While the latest review was initiated by career Justice Department staff who will remain in place, the subpoena was signed by Douglas Melamed, a Clinton appointee who became antitrust chief after Joel Klein resigned from the post last year.
Mr. Melamed's likely successor, Washington antitrust lawyer Charles James, hasn't been formally named by the White House. In his few public comments on the Microsoft case, he has expressed skepticism about the wisdom of an outright breakup of Microsoft, saying it might harm consumers. But he hasn't said he would drop the case. Indeed, he is widely expected to await the appellate court's ruling before taking action on the case. The Justice Department also has been looking into Microsoft's pending $1.1 billion buyout of Great Plains Software Inc., a maker of business-accounting programs. The Great Plains inquiry began as a routine review under the Hart-Scott-Rodino merger act, but has raised fewer competitive issues than the Corel investment because there are few direct overlaps with Microsoft products. Both inquiries were assigned to the Justice Department's San Francisco field office, which handled the landmark 1998 Microsoft antitrust case that is under appeal.
The Corel investigation was unexpected because, unlike Great Plains, the deal wasn't subject to an automatic review under the federal merger law. While such transactions are sometimes reviewed, Microsoft structured its investment of 24 million convertible shares so that it didn't include voting rights in the company's management.
As part of the Corel review, officials have sought documents from Borland Software Corp., a person close to the Scotts Valley, Calif., company said. Borland, once a fierce rival, last year accepted a $100 million licensing deal from Microsoft.
Shortly after Microsoft made its investment, Corel said it would leave the market for Linux operating-system software, raising additional antitrust concerns, lawyers briefed on the inquiry said. Federal officials also are examining terms of a contract in which Corel commits to develop software for Microsoft's new .Net Internet software initiative, before it writes similar programs for other operating systems, the lawyers briefed on the case said.
When Microsoft and Corel announced their relationship last fall, analysts said the deal might have been intended to shore up an ailing rival at a time when Microsoft's lawyers were arguing in the appeals court that the personal-computer software industry remained vigorously competitive. Microsoft dismissed the claim.
Meanwhile, the broader Microsoft antitrust case that was decided in the government's favor last year is scheduled to be heard by a seven-judge U.S. Circuit Court appellate panel here Feb. 26 and 27.
