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The European Commission looks set to issue a formal statement of objections that could stymie the acquisition of U.S. anti-piracy software developer ContentGuard Inc. by Microsoft Corp. and Time Warner Inc., according to published reports — a move that would be sure to strain an already tense relationship between U.S. and European Union regulators. A commission spokeswoman late Friday would not confirm reports the agency intended to raise objections to the transaction, saying it had yet to make a final decision. The agency, the executive arm of the EU, has until early January to decide whether or not to clear it. A decision to issue formal objections, following an in-depth investigation announced in August, would mark the second time the commission has aimed to block a deal among U.S. companies that had already been approved by U.S. authorities. EU Competition Commissioner Mario Monti’s thumbs-down in 2001 on General Electric Co.’s proposed buy of Honeywell International Inc. set off a bitter trans-Atlantic war of words that reached all the way to the White House. Another bust-up with America could hardly come at a worse time for the commission, which is caught in a politically charged flux. Monti was set to vacate his post Friday to make way for his replacement, Dutch businesswoman Neelie Kroes. But the commission went into a holding pattern after its incoming president, Jos� Manuel Barroso, yanked his entire slate of 25 new commissioners, Kroes among them, rather than face defeat in a parliamentary vote on the new group. “The difficulty of making a decision like this [ContentGuard], especially on something this sensitive, is that it is in a political vacuum,” said Alasdair Murray, senior research fellow at the Centre for European Reform, a London think tank. “You want a clear competition chief to rule on it.” The commission’s broader problems center on Rocco Buttiglione, a commissioner-designate whose inflammatory remarks about homosexuality and single motherhood sparked fierce opposition. Rather than remove Buttiglione from the slate, Barroso stood by him. Then, when it became clear he would not get sufficient votes to install the slate, he withdrew it. The upshot in the cross-border deal arena is that, for now, Monti remains in office. The commission could press formal charges against Time Warner and Microsoft — which is already battling the �497 million ($633 million) fine the commission slapped on it for abuse of its dominant position — as early as this week, according to reports. And if Barroso’s prediction that the spat over the incoming commission would be resolved within a few weeks proves correct, Monti would be leaving Kroes — who herself has come under criticism for her service on several company boards — one very hot potato. Bethesda, Md.-based ContentGuard develops digital rights management technology that enables legal music downloads on the Internet and on mobile networks. Most hardware manufacturers are investing in DRM with the aim of setting new industry standards to prevent illegal copying of music, films and, increasingly, sensitive corporate documents, distributed over the Internet. Time Warner and Microsoft announced in April that each intended to buy half of ContentGuard. In Europe, observers had been concerned that the commission’s yearlong investigation into Oracle Corp.’s hostile offer for PeopleSoft Inc. would result in a replay of the GE-Honeywell decision. The commission gave the deal its blessing earlier, but not without putting some hot rhetoric into flight across the Atlantic. Indeed, despite revamped merger review guidelines — effective in July — that borrow heavily from the U.S. model and have brought the agencies’ approaches closer together, the perception has gone the opposite way. “In substance, they are closer now,” Murray said. “But there is a growing suspicion that the commission is acting in an anti-American way. This will clearly heighten tensions.” Microsoft wasn’t the only big American tech company that met with bad tidings from Europe. Ireland’s competition authority announced its veto of IBM Corp.’s attempted purchase of the disaster recovery arm of multinational Schlumberger Ltd. Copyright �2004 TDD, LLC. All rights reserved.

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