EU objects to Microsoft-Time Warner ContentGuard deal

Acquisition will be cleared if third parties are able to license the DRM technology , source say

BRUSSELS -- The European Commission has issued a formal set of objections to Microsoft Corp. and Time Warner Inc. taking control of ContentGuard Holdings Inc., a digital rights management (DRM) company, according to sources familiar with the case.

The Commission, the European Union's antitrust regulator, sent the two firms a "statement of objections" which they received on Friday, setting out the reasons why it thinks the joint venture might create or strengthen a dominant position in the market.

However, sources familiar with the case doubt the Commission will block the move, predicting instead that it will be cleared as long as the companies allow third parties to access the technology through licensing.

In August, the Commission began an in-depth investigation of the acquisition of ContentGuard by the two companies, saying: "Under Microsoft's and Time Warner's joint ownership, ContentGuard may have both the incentives and the ability to use its (intellectual property rights) portfolio to put Microsoft's rivals in the DRM solutions market at a competitive disadvantage."

It added that the acquisition could also slow development of open interoperability standards and would allow the DRM solutions market to "tip" towards the current leading provider, Microsoft.

Despite the Commission's concern about the impact on the market, sources familiar with the case said that a settlement between the Commission and the two companies was likely and would involve access to ContentGuard technology under fair licensing terms.

The two companies have two weeks to respond to the Commission's statement and may request a hearing to present their arguments.

The companies will have to present any settlement terms ahead of the Jan. 6 deadline for the Commission's final decision on whether to clear the merger.