MS faces antitrust probe of deals with Corel, Great Plains

[Antonis Stylianou]

MS faces antitrust probe of deals with Corel, Great Plains

By John R. Wilke

WSJ Interactive Edition
February 14, 2001 4:49 AM PT
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.
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 (Nasdaq: MSFT) three weeks ago, 
the Justice Department demanded all internal documents on the software 
company's $135 million investment in
Corel (Nasdaq: 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 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 percent. 
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.


New administration, new probe
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.


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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.