July 10 (Bloomberg) -- U.S. antitrust enforcers are investigating Nuance Communications Inc.’s acquisition last year of a rival speech recognition software company from Royal Philips Electronics NV.

The Justice Department is examining Nuance’s roughly $96.1 million purchase of Philips Speech Recognition Systems, said Gina Talamona, a department spokeswoman, in response to an inquiry. Talamona declined to give specifics about what is being investigated.

Antitrust enforcers more often examine acquisitions before they are completed to determine whether they would lead to higher prices and reduce innovation. In this case, Nuance wasn’t required to report the proposed purchase to the enforcers for possible review because Philips had limited sales in the U.S., according to Nuance.

The Justice Department may be investigating whether the acquisition resulted in “sufficient elimination of competition so that Nuance can raise prices,” said Marc G. Schildkraut, an antitrust lawyer at Howrey LLP in Washington, who isn’t involved in the case and didn’t have any independent knowledge of the matter.

Depending on the outcome of the investigation, the Justice Department could seek to force Nuance to divest the Philips unit or license technology to another company, Schildkraut said in an interview.

Talamona declined to say what sparked the Justice Department probe. Investigations may begin after competitors file complaints, or enforcers may initiate investigations on their own.

Nuance, based in Burlington, Massachusetts, rose 26 cents, or 2.3 percent, to $11.84 at 4 p.m. New York time in Nasdaq Stock Market trading. The shares have risen 14 percent this year.

Dictaphone Owner

Nuance, the owner of Dictaphone, a speech dictation and transcription system, had $868.5 million in sales in its 2008 fiscal year, which ended Sept. 30.

The company makes speech recognition products for uses in such fields as education, health care, the legal profession and insurance. Sales of the Vienna-based Philips unit acquired by Nuance were largely in the health-care market in Europe, according to Nuance.

The health-care voice recognition software lets doctors dictate patient information and turns the dictation into text.

The acquisition, announced on Oct. 1, didn’t require U.S. antitrust review before it took place because the Philips speech business had “just a few million dollars of business in the United States,” Richard Mack, a spokesman for Nuance, said in an e-mail.

Not Significant Factor

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

Nuance has been “cooperating with the Justice Department on this matter since late 2008,” Mack said.

Philips was Nuance’s “biggest rival” in health-care dictation, according to an October report by Datamonitor, a London-based research firm. Nuance had a “small presence” in Europe and Philips had a “small presence” in the U.S., Mack said in an interview.

Nuance said in an October statement announcing the acquisition that it “significantly enhances its ability to deliver innovative, speech-driven clinical documentation and communication solutions to health-care organizations throughout Europe.”

The statement said Nuance expected the acquisition to add between $36 million and $39 million in revenue in fiscal 2009, under generally accepted accounting principles.

Expanding Company

Nuance has acquired about two dozen companies since 2000. The company was known as ScanSoft Inc. before it acquired Nuance Communications in 2005 and changed its name.

In the speech recognition market, Nuance competes with companies including Redmond, Washington-based Microsoft Corp. and Mountain View, California-based Google Inc., according to a Nuance quarterly report filed in May.

In the health-care dictation and transcription market, competitors include Franklin, Tennessee-based Spheris Inc., which is closely held, and MedQuist Inc., based in Mount Laurel, New Jersey, according to the filing.

Royal Philips, based in Amsterdam, isn’t involved in the antitrust investigation, said Santa van der Laarse, a company spokeswoman, who declined to make additional comments.

To contact the reporter on this story: Justin Blum in Washington at jblum4@bloomberg.net

Last Updated: July 10, 2009 16:15 EDT