Nuance Comes Under Government Scrutiny

The U.S. Department of Justice confirmed that it is conducting an antitrust investigation of Nuance Communications.

The investigation follows Nuance’s acquisition of Philips Speech Recognition Systems from Royal Philips Electronics for $96.1 million in October of 2008. There has been concern since the purchase that Nuance would essentially control the medical transcription market. Before acquisition, Nuance already dominated this field in the U.S., and with Philips gained a strong foothold in the European market.

Thoughout its history, Nuance Communications has had a robust acquisitions strategy, buying up a number of competitors. Since 2006 alone, it has swallowed as many as 15 companies, including: Dictaphone, a major medical transcription player for which it paid $357 million; eScription, another medical transcription firm for which it paid $340 million; and, most recently, Jott Networks, a provider of mobile voice-to-text applications which was acquired for an unspecified amount.

Nuance’s acquisitions, which have sometimes been preceded by legal action for patent infringement, have been the subject of complaints from some of its competitors. Whether these complaints launched the investigation is, as of yet, unclear.

Gina Talamona, a Justice Department spokesperson, would only confirm that the investigation was pending, and that it related to the acquisition of Philips Speech. The department would not say whether its impetus came from investigators or a complaint filed by a competitor. It also declined to comment on whether the investigation had spread or would be spreading beyond the scope of the Philips acquisition—implicitly Nuance’s medical transcription business.

In most cases, the Justice Department begins investigations before an acquisition; however, at the time of the deal it did not deem them necessary.

Accounting for this, Richard Mack, a Nuance spokesman, told Bloomberg, Philips had “just a few million dollars of business in the United States.”

“[Philips] was not a significant competitor to Nuance or any other U.S.-based speech recognition company,” he added. “We do not see how anyone could think this combination reduces competition anywhere.” 

That said, revenues in the company’s healthcare unit have been significant. In October of 2008, Tom Beaudoin, Nuance's chief financial officer, stated that Nuance’s healthcare business would deliver worldwide revenues in excess of $410 million in fiscal year 2009. In the second quarter, Nuance’s revenues in healthcare totaled $105.2 million—up 32 percent from the same time last year.

The Justice Department’s investigation has been ongoing for several months; Nuance says that it has been cooperating with the government since late 2008.