UPDATED: 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.

Throughout 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 also declined to comment on whether the investigation had spread or would spread beyond the scope of the Philips acquisition to include Nuance’s other business sectors.

In a December 2008 email obtained by Speech Technology, and sent by Peter Preziosi, chief executive office of the Medical Transcription Industry Association (MTIA), to MTIA’s board and others, Preziosi wrote that he took part in a meeting called by Justice Department officials. The officials, a group comprised of lawyers and economists, were investigating whether or not “recent acquisition activity of Nuance constituted a monopoly within the [medical transcription sector].”

According to the email, Preziosi said his comments “focused mainly on the interconnectedness of the dictation/transcription process to patient care delivery and the healthcare reimbursement system.”

He claimed that while the Justice Department officials had general familiarity from an economic, policy, and technology perspective, they had little if any knowledge of how the transcription sector operates specifically.

Preziosi explains in an interview with Speech Technology that “The biggest challenge is trying to define what that marketplace looks like because it’s evolving so much with new enabling technologies coming into the marketplace.”

Since December, the Justice Department has spoken to a number of figures in the speech industry, far outside the confines of just medical transcription. It’s not known, however, if this means that the investigation’s scope has widened beyond Nuance’s acquisition of Philips, or if the Justice Department is inquiring to get a handle on the speech technology space in its search.

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

Accounting for this, Richard Mack, a Nuance spokesman, told Bloomberg that 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.”

This year, revenues in the company’s healthcare unit have been significant. At the time of the acquisition, 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.

Nuance says that it has been cooperating with the government on this investigation since late 2008.