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Microsoft Corp. is back under the EU’s loupe after the European Commission on Wednesday opened an in-depth probe into its and Time Warner Inc.’s joint acquisition of ContentGuard Inc., a Bethesda, Md.-based maker of anti-piracy software. Five months ago, the Commission imposed a record �497 million ($601 million) fine against Microsoft, which it has since appealed, after finding that the Redmond, Wash.-based company abused its dominant position in computer operating systems. Time Warner has also clashed with Brussels over its 2000 merger with America Online which the Commission conditionally approved only five days after it and EMI Group plc called off their $20 billion deal amid antitrust concerns. The EU may still clear the ContentGuard deal, but the opening of a relatively rare, four-month investigation suggests is has serious reservations. It also could add to trans-Atlantic tensions over antitrust policy, with U.S. critics accusing the EU of undermining global business. No antitrust review was required in Washington on this deal because it didn’t cross the jurisdictional threshold. But a negative decision in the EU could scuttle it anyway, as happened in 2001 when the EU blocked General Electric Co.’s attempt to merge with Honeywell International Inc. after the deal was cleared in Washington. The probe announced Wednesday concerns Time Warner and Microsoft’s joint acquisition of ContentGuard from Xerox Corp. in April. Terms of the deal were not disclosed, but Xerox has reported an after-tax gain of $83 million from the sale of most of its stake. Xerox spun off ContentGuard in 2000 and is keeping a minority stake, though it won’t disclose the size. In opening the stage two probe, regulators said they would examine whether the deal might create or strengthen Microsoft’s already leading position in the digital rights management, or DRM, market. Time Warner and Microsoft are investing in DRM with the aim of setting new industry standards in technology used to prevent illegal copying of music, films and, increasingly, sensitive corporate documents, distributed over the Internet. DRM enables legal music downloads on the Internet and on mobile networks and most hardware manufacturers like Apple Computer Inc. and Sony Corp. have their own standards. ContentGuard licenses patented technologies to customers including Microsoft, Sony and OverDrive Systems Inc., a Cleveland-based digital publisher involved in protecting books from online piracy. Time Warner and Microsoft, a longtime investor in ContentGuard, offered concessions to secure clearance during the first phase, which was then extended by two weeks, Commission spokeswoman Amelia Torres told journalists Wednesday that the regulators’ concerns “were not entirely addressed.” Speaking on behalf of itself and Microsoft, Time Warner said in a statement that “The parties are cooperating fully with the Commission as this is a complex area.” The EU executive said in a statement that under the new owners, ContentGuard may have both the incentive and the ability to put Microsoft’s rivals at a competitive disadvantage. With DRM solutions expected to become pervasive throughout the entire information technology field, “the notified concentration may have spillover effects on a number of related markets ranging from mobile telephony to word processors,” it said. The Commission warned that the joint acquisition could slow down the development of open interoperability standards, thereby boosting the current leading provider, Microsoft. Bill Rosenblatt, founder and editor of Giant Steps Media Technology Strategies, a New York-based management consultancy focused on the content industries, said one area that EU regulators may be concerned about is Microsoft’s status as both an owner and licensee of ContentGuard technology. “If you look at the online music scene in Europe, the dominant players all use Microsoft technology,” he said. The Commission has until Jan. 6 to reach a decision, although it is under no obligation to take the full four months. Any decision that comes after the new Commission takes over Nov. 1 would be left to Mario Monti’s successor, Dutchwoman Neelie Kroes. As with all stage two cases, the Commission noted that the opening of an in-depth case does not prejudice its conclusions and final decision. Copyright �2004 TDD, LLC. All rights reserved.

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