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With up to a month to go before the European Commission rules on whether to allow Microsoft Corp. and Time Warner Inc. to keep their recently acquired digital rights manager, ContentGuard Inc., the firms are under increasing pressure to culminate a revision to the deal that would take it out of the regulator’s jurisdiction. The buyers have until Friday to submit remedies to allay regulators’ concerns over the purchase of the Bethesda, Md.-based anti-piracy software maker, originally notified in July 2004. The Commission’s deadline for a decision is April 7, about a year after the deal was completed, but it could rule before. To convince the Commission to drop its in-depth probe, the companies must show that French consumer electronics vendor Thomson SA has definitively joined the other two buyers, as announced in November, about three months after regulators launched their investigation into the original deal. A Thomson spokeswoman would only say the deal isn’t yet finalized and could not give a time frame for completion. The delay is puzzling because its closure could be the key to allowing Microsoft and Time Warner to retain ContentGuard, which provides a service increasingly in demand by producers of movies, music and sensitive corporate documents from being copied and distributed over the Internet and on mobile networks. Time Warner and Microsoft are investing in the new technology with the aim of setting new industry standards to prevent digital piracy. Should the buyers be able to show that there are now three equal partners each with 33 percent stakes and two seats apiece on the management board, then the revised deal would fall outside the scope of European Union merger rules and the original notification could be thrown out. The Commission, an executive branch of the EU, cannot review deals that more than two companies control equally. Problem is, with the Thomson deal not yet completed, the companies cannot yet withdraw notification on the original deal, which remains under the Commission’s scrutiny. A spokesman for Microsoft and Time Warner declined to comment. Competition experts were hard-pressed to name any similar cases in which a deal’s parties have been changed while an in-depth review was in progress, though most seem to agree that the change in a deal’s equation cannot be considered a “remedy” in the classical sense. That would typically involve divesting assets that give a combined entity dominance in a particular market. But exactly how the scenario will play out in this review remains unclear. “It’s an interesting case procedurally and substantively,” said Thomas Vinje, a Brussels-based partner with Clifford Chance who represented Sun Microsystems Inc. and other members of the Computer and Communications Industry Association in a separate antitrust case that resulted in a record �497 million ($657 million) fine against Microsoft, now under appeal. “The situation we seem to face here now in my knowledge is unique.” Another competition lawyer who did not wish to be named said if the Commission must drop its probe, it could still save face by fining the buyers for failing to complete the revised deal in a timely fashion: “I don’t think the Commission wants to enter into another fight with Microsoft,” the lawyer said. Regulators opened an in-depth review into the original tie-up in August 2004 amid concerns that it would strengthen Microsoft’s already leading position in digital rights management. In December, regulators stopped the clock for two months to gather more information from the companies. The investigation centers on Time Warner and Microsoft’s joint acquisition of ContentGuard from Xerox Corp. in April 2004. Terms of that deal were not disclosed, but Xerox has reported an $83 million after-tax gain from the sale of most of its stake. Xerox spun off ContentGuard in 2000 and still has an undisclosed minority stake. Washington did not require an antitrust review as the deal did not cross the jurisdictional threshold. But any negative decision by Brussels could scuttle it anyway, as happened in 2001 when the EU blocked General Electric Co.’s attempt to merge with Honeywell International Inc. after Washington cleared the deal. Copyright �2005 TDD, LLC. All rights reserved.

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