Legal experts are lauding the US Department of Justice's investigation of Microsoft's US$135 million investment in rival Corel, saying the union is "dangerous" in its own right.
The latest legal challenge comes at a time when the software giant's legal team is hard at work preparing to present oral arguments to the Appeals Court in the District of Columbia at the end of the month.
Those arguments form part of Microsoft's appeal of District Court Judge Thomas Penfield Jackson's order last year to split the company into two.
But the Justice Department's antitrust division - and, it appears, individual states - are now also examining whether Microsoft's acquisition last October of a 24.6 percent stake in Corel reduces competition in the market for business software such as word-processing and spreadsheet applications.
Herbert Hovenkamp, law professor and an anti-trust expert, said this was a standard merger investigation to examine whether competition in the industry would be stifled by the investment of a dominant industry player (in this case, Microsoft) in its most substantial rival (Corel).
"I think the Microsoft/Corel union is a dangerous one in its own right," Hovenkamp said. Microsoft is the dominant producer of multifunction office productivity software - with more than 90 percent of that market - while Corel is its lagging rival.
"While Corel has previously proved a vigorous competitor with its WordPerfect Office suite and CorelDraw graphics application, this deal cuts the competitive edge in that industry," he added.
Corel also offers a Linux version of WordPerfect Office. Linux is a free, open-source operating system that competes with Microsoft's Windows platform. Corel recently announced that it planned to spin off the desktop distribution side of its Linux division, but would retain applications like WordPerfect Office and CorelDraw for Linux.
What about the states?
Another anti-trust expert, Bill Kovacic, a professor of law at George Washington University, said it appeared that the attorneys general from the various states would also be examining the deal, adding far more weight to the investigation.
"The Department's decision in this matter will thus be far less authoritative as the states can disagree with it and take the ball and run with it," Kovacic said.
Hovenkamp said the DOJ has three options: It could call off the investigation and decide not to take the matter further, challenge the deal while trying to negotiate an acceptable solution or proceed with litigation.
"I wouldn't be surprised if the Justice Department decided to challenge the deal once the investigation is complete," he said. "But whatever happens in this matter should not have any bearing on the current pending anti-trust lawsuit."
Kovacic disagreed, saying the government and the states could try and use the latest investigation in their oral arguments before the Appelate Court to prove that Microsoft was continuing its campaign of "manifest destiny" and that the Corel deal was the latest ingredient in that plan.
"But whether the Appelate Court will allow this or, if it does, how much weight it will accord it, remains to be seen," Kovacic said. Microsoft, the DOJ and Corel, while all confirming the investigation, remain tight-lipped on the issue.
Microsoft has said it is cooperating with the government, while a Corel spokeswoman said it was supplying the DOJ with whatever material and information it needed related to the deal.
"But we are moving forward, full-steam ahead, and are focusing on our new corporate strategy and returning to profitability," she said.
