An end user with a very big stake in the future of Corel - the US Department of Justice (DOJ) - is using its legal powers to probe the antitrust implications of Microsoft's recent $135 million investment in the struggling software vendor.
Officials at both Microsoft and the DOJ today confirmed that the agency is seeking documents related to the investment deal and strategic alliance that Microsoft and Corel signed last October. The two office software rivals said the agreement signalled the start of increased collaboration, including joint development, testing and marketing initiatives.
The DOJ is looking into "the competitive effects of the transaction," said agency spokeswoman Gina Talamona. However, she declined to comment on the scope of the investigation or on when the DOJ began its probe of the deal.
Microsoft spokesman Jim Cullinan said DOJ officials made "a narrowly focused request for information" about the deal. "We can't comment beyond that because this is supposed to be a confidential process," he added. "Nothing in our investment in Corel should raise any legal concerns, but we are cooperating with the Justice Department to provide them with the information they've requested."
Corel's WordPerfect suite of office applications competes against Microsoft Office, but market research firm IDC, said Microsoft controls about 94 per cent of the word-processing portion of the market. However, the DOJ is a major WordPerfect user: In 1999, it bought an enterprise site license that covered the installation of Corel's software on a total of 35,886 PCs. That contract runs for three years, according to a DOJ official.
Some critics of Microsoft welcomed the DOJ's investigation of the Corel deal.
"Microsoft has market power in Office, and to invest in its only significant remaining competitor has got to raise questions," said Ken Wasch, president of the Software & Information Industry Association, which has filed briefs in support of the DOJ's antitrust case against Microsoft.
Wasch called the request for information about Corel "a perfectly reasonably inquiry" into antitrust concerns. In particular, he cited a restructuring announcement made last month by Corel, in which the company said it will target WordPerfect at the current installed base and try to spin off its Linux operating system distribution division.
As part of that announcement, Corel CEO Derek Burney said executives at the embattled company were "choosing not to go into a head-to-head battle" with Microsoft because most users have selected the latter's office suite as a de facto standard.
But Cullinan said there was nothing in Microsoft's agreement with Corel that asked the latter company "to do or not do anything" with its products. Corel officials "can make their own decisions about what software they want to develop for what platforms," Cullinan said. The only exception, he added, was an agreement for Corel to develop software supporting Microsoft's Internet-based .Net initiative.
In any event, Corel's Linux operating system efforts aren't making money, said Bill Claybrook, an analyst at Aberdeen Group. If Corel's Linux distribution plans are "the basis of [the government's] investigation, it's pretty shallow as far as I'm concerned," Claybrook said.
Jim Beals, a graphic artist at the National Society of Professional Engineers, who uses Corel's graphics applications and is president of a local Corel user group, said the company's deal with Microsoft didn't strike him as particularly ominous. "I saw it as kind of like the Apple bailout," said Beals, referring to a $150 million investment that Microsoft made in Apple four years ago.
The investigation of the Corel investment comes as the US Court of Appeals in Washington is considering Microsoft's appeal of U.S. District Court Judge Thomas Penfield Jackson's ruling that the software giant engaged in anticompetitive behavior and should be split into two separate companies. The appeals court plans to hold two days of oral arguments between Microsoft and the DOJ later this month.