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While oil companies, airlines, banks and telephone giants are allowed to merge, why do antitrust regulators at the Federal Trade Commission care about the acquisition of a $60 million legal software vendor? The answer, it seems, is that certain major U.S. law firms told them that they should. The FTC staff opposed an attempt by Solution 6 Holding Ltd. to buy time-and-billing software vendor Elite Information Group Inc. In the FTC’s view, Solution 6 would have had a stranglehold on the nation’s biggest firms. Rather than fight the commission’s preliminary opinion, Solution 6 and Elite ditched the merger plan last month. In October 1999, Sydney, Australia-based Solution 6 bought the company that makes CMS Open, Elite’s main rival. The consolidation of Elite and CMS would have given Solution 6 close to a 70 percent share of the time-and-billing market among the nation’s 100 largest law firms. The information technology staffs of New York’s Shearman & Sterling and Gray Cary Ware & Freidenrich, which is based in Palo Alto and San Diego, Calif., for example, had reservations about the top two firms in a market merging. But neither of those firms admits to having complained directly to the FTC. Several large firms, however, supported the union. “I don’t think the FTC has done the world a bunch of good by breaking this up,” says David Shannon, a Sydney- and Chicago-based partner at Baker & McKenzie, the world’s largest law firm and an Elite customer. “The firm looked forward to working with a vendor that had the full global reach to support us.” “We thought the two companies would meld together and give us an improved product,” says Steve Agnoli, the chief information officer of Pittsburgh’s Kirkpatrick & Lockhart, also an Elite customer. But the FTC listened to the critics rather than the fans. “The FTC told us that it put a lot of weight in the input it got from other big firms,” says Chris Poole, Elite’s chief executive. “The FTC also told us that a handful of big firms were concerned with the white-elephant problem,” says Everett Bowman, a litigator at Charlotte, N.C.’s Robinson, Bradshaw & Hinson, Elite’s counsel. (Washington, D.C.’s Baker & Miller. also counseled Elite on the aborted deal, while Solution 6 used Dallas’ Jackson Walker.) In other words, the complaining firms figured that Solution 6 would support either CMS Open or Elite, but not both. Firms that had recently invested in one of the platforms worried that theirs would be the one abandoned. So some well-connected lawyers privately groused to folks at the FTC. And the investigation gained momentum. Other legal vendors saw the merger as a way to move into the market. Albuquerque, N.M.’s ProLaw Software, for example, has been trying to break into the large-firm market for the past couple of years. “It seems so silly that the FTC would care about this,” says Bill Bice, the chief executive of ProLaw. ProLaw makes a case management program that has a time-and-billing component. Bice told the FTC the merger would allow companies like ProLaw to chip away at the CMS Open/Elite market share. So why did the FTC only look to large, U.S.-based law firms as the relevant market? If it defined the market slightly differently, by including smaller law firms or other professional service firms, the combined market share of CMS Open and Elite dwindles rapidly. The FTC’s staff isn’t talking. But the likely answer is both companies, even though they are diversifying, still get the bulk of their revenues from large law firms today. But the companies feel that the FTC should have acknowledged their recent forays into other markets. “We think the FTC needed to account for other segments where hourly billing is big,” says Steve Todd, one of Elite’s in-house attorneys. “The FTC went in the wrong direction on this one,” adds Baker’s Shannon. “Law firms are increasingly competing with accounting firms and consulting firms.” Solution 6 and Elite tried to persuade the FTC that the merger wouldn’t choke off competition. They even used the so-called Microsoft argument: that tomorrow’s technological innovations will ultimately discredit today’s antitrust analysis. “For one thing, the company that develops a good Web-based time-and-billing application will definitely challenge the status quo companies,” says Gary Rogers, the former president of CMS and current senior vice president of sales at USinternetworking, an application service provider. But on this point, there’s disagreement. “To say these companies will be challenged in the near future is wrong,” says Donald Jaycox, the chief technology officer at Gray Cary. “Law firms just don’t move that quickly.” To learn about Solution 6, go to www.solution6.com. The FTC’s antitrust page is at www.ftc.gov/ftc/ antitrust.htm. Elite’s Web site is located at www. eliteis.com.

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