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Microsoft faces new probe
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February 14, 2001: 12:40 p.m. ET
Company says it is cooperating with new Department of Justice investigation
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NEW YORK (CNNfn) - Microsoft Corp. on Wednesday said it is cooperating with a U.S. Justice Department probe of its business practices in the market for productivity software, which the company currently dominates with its "Office" suite of products.
The investigation, first reported in Wednesday's edition of the Wall Street Journal, centers on Microsoft's investment in Corel Corp., whose "WordPerfect" word-processing software competes against Microsoft's "Word."
News of the investigation comes as Microsoft is set to present oral arguments in its appeal of another antitrust ruling last year, when a federal a judge ordered the company's breakup.
The U.S. Justice Department subpoenaed Microsoft (MSFT: Research, Estimates) three weeks ago, demanding all internal documents on the software company's $135 million investment in Corel (CORL: Research, Estimates) last October, according to the Journal report.
At issue is whether Microsoft's investment in the Ottawa-based company could reduce competition in the office software package market, which includes word processing, spreadsheets and graphics, the Journal report said, citing a source with knowledge of the matter.
Corel is best known for its WordPerfect and CorelDRAW programs. The company reported a fourth-quarter loss on declining sales and recently has been grappling with a cash crunch amid slower sales of its older product lines. 
With the Microsoft deal, Corel would gain access to the cash immediately, and the two companies said they plan to work together to support the development, testing and marketing of new products related to Microsoft's Internet strategy, which it has dubbed ".NET."
Microsoft Office dominates the productivity sector with a more than 90 percent market share. Corel's WordPerfect Office software is important because it is also available in a Linux-based computer operating system, which directly competes with Microsoft's Windows.
Microsoft said Wednesday the company has been providing the Justice Department with information, but noted that the company does not believe there are any legal issues with the Corel transaction and remains confident it will not be challenged.
"We are complying and cooperating with the government to provide them with any information they need and request," said Microsoft spokesman Jim Cullinan. "This is a very narrow legal request and we believe there are no legal issues here that should be of any concern, but we are working to address any concerns the government may have."
Sources close to the matter suggested that the probe was started in the final days of the Clinton administration and a former Justice Department official leaked it to the press.
Whether the Justice Department aggressively pursues the case depends on the Bush administration's approach toward Microsoft. Although career Justice Department staff issued the subpoena, it was signed by Douglas Melamed, a Clinton appointee who became antitrust chief after Joel Klein resigned last year.
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Melamed's likely successor, Washington antitrust lawyer Charles James, hasn't been formally named to the post, but he has expressed skepticism over the breakup of Microsoft, saying it might harm consumers, according to the Journal report.
In a related development, the Justice Department is also scrutinizing Microsoft's pending $1.1 billion buyout of Great Plains Software Inc. (GPSI: Research, Estimates), a maker of business accounting programs.
Microsoft shares slipped 25 cents to $57.94 in early afternoon trade Wednesday. Corel shares were up 19 cents at $$2.69 and Great Plains shares fell 25 cents to $62.81.
-- from staff and wire reports 
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