Enterprise Software

EU will probe Microsoft, Time Warner buy

The decision is a setback for the two companies and their plan to acquire ContentGuard, a digital rights management firm.

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By Dawn Kawamoto
Staff Writer, CNET News.com

European antitrust regulators have announced they will conduct an in-depth investigation into a plan by Microsoft and Time Warner to acquire digital rights management company ContentGuard—a development that's seen as a setback for the deal.

The European Commission, which recently wrapped up its preliminary review of the proposed buy, had the option of either allowing the deal to proceed or conducting an in-depth second-phase investigation. The Commission announced its plans Wednesday, which was its deadline for making a decision.

"After a preliminary review, it appears to the Commission that the transaction might possibly create or strengthen a dominant position by Microsoft in the market for digital rights management solutions," the Commission said in a statement. "In the course of the investigation, the Commission will also investigate further competition concerns related to the vertical integration of Microsoft in other markets."

A spokeswoman for Time Warner said that her company and Microsoft have no specific comment other than that the parties are cooperating fully with the Commission, "as this is a complex area."

Microsoft, which has been a longtime investor in Bethesda, Md.-based ContentGuard, increased its investment in the digital rights management company in April, when it announced Time Warner would join it in acquiring virtually all of ContentGuard from Xerox.

Microsoft and Time Warner view the ContentGuard deal as a means for establishing a stronger stake in the growing market for digital rights management. That technology prevents the illegal copying of content, such as songs and videos.

The Commission will now have until Jan. 6, 2005, to render a final decision on the buy. If the Commission ultimately determines the acquisition would violate European antitrust laws, it could be a deal-killer for the companies, because ContentGuard would be prohibited from operating in Europe, a major market.

The Commission noted that digital rights management technology is expected to be increasingly used for confidentiality purposes, especially in securing the transmission of corporate documents.

European antitrust regulators also decided to investigate whether the deal might create or strengthen Microsoft's "already leading position in the (digital rights) solutions market," the Commission said in a statement.

The Commission is concerned that, under joint ownership, ContentGuard may have both the "incentives and the ability" to use its portfolio of intellectual-property rights to put Microsoft's rivals in that area at a competitive disadvantage.

"This joint acquisition could also slow down the development of open interoperability standards. As such, this would allow the (digital rights management) solutions market to 'tip' towards the current leading provider, Microsoft," the Commission's statement said.

And because the digital rights technology is expected to become pervasive throughout the IT industry, the Commission is concerned Microsoft's position in the market "may have spill-over effects on a number of related markets, ranging from mobile telephone to word processors," the Commission said.

The Commission's decision marks the second against Microsoft in recent months. Last March, the European Commission issued a historic $613 million fine against Microsoft, ruling that the software giant failed to provide competitors with technical information they needed to compete fairly in the market for server software.

European antitrust regulators also cited Microsoft for offering Windows on the condition that it come bundled with the Windows Media Player, alleging the software giant was stifling competition.

Microsoft, which is contesting the Commission's findings in the Media Player case, will now head to the Court of First Instance in September, where it will ask the court to suspend the Commission's remedies, such as requiring that the software giant offer a version of Windows without Media Player.

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