The firm in question, ContentGuard is a leading provider of DRM technology, which controls how copyrighted digital content, such as DVDs or software, can be viewed, used, or abused.
Microsoft and Time Warner announced in April that they, together with ContentGuard, had purchased most of the stake held in that company by its original owner, Xerox.
As both Microsoft and Time Warner are industry leaders, the joint acquisition required approval from EU competition regulators, who were supposed to issue their initial verdict on the transaction last week.
This verdict, which could have allowed the purchase to go ahead, instead has launched an in-depth investigation. The Commission must issue its final decision by 6th January 2005.
Under Microsoft's and Time Warner's joint ownership, said the Commission yesterday, ContentGuard may have both the incentive and the ability to use its patent portfolio to put Microsoft's rivals in the DRM solutions market at a competitive disadvantage.
The Commission also warned that the joint acquisition could slow down the development of open interoperability standards. As such, this would allow the DRM solutions market to "tip" towards the current leading provider, Microsoft.
DRM solutions are expected to become pervasive throughout the entire IT industry, said the Commission. As a consequence, the notified concentration may have spill-over effects on a number of related markets ranging from mobile telephony to word processors.
Microsoft can expect the Commission to consider any major acquisitions with a critical eye, following the Commission's finding in March this year that the software giant had broken competition law by leveraging its near monopoly in the market for PC operating systems onto the markets for work group server operating systems and for media players.
The Commission imposed a €497.2 million fine on Microsoft and obliged the company to "untie" the Windows Media Player from the Windows operating system. The ruling has been challenged by Microsoft and should come before the European Court of First Instance in September.