TechWeb

EU Extends Review Of Microsoft-Time Warner Deal

Aug 25, 2004 (07:08 AM EDT)

Read the Original Article at http://www.informationweek.com/news/showArticle.jhtml?articleID=30900136


BRUSSELS, Belgium (AP) -- Software giant Microsoft Corp. and the media and entertainment powerhouse Time Warner Inc. ran into fresh trouble with the European Union on Wednesday as antitrust regulators ordered an in-depth probe of their deal to collaborate in making anti-piracy software.

The European Commission said it was worried about Microsoft's ability to "tip" the burgeoning demand for so-called "digital rights management" software in its favor, turning what is already a "leading position" in that market into a dominant one. Microsoft, based on Redmond, Wash., is the world's largest software provider

That echoes charges the EU made in its landmark decision against Microsoft last spring, when the software giant was ordered to remove its Media Player program from its ubiquitous Windows operating system to prevent that segment of the market from "tipping" to a Microsoft monopoly.

Working together, Microsoft and the world's biggest media concern aim to develop new standards in the market for digital rights management technology, which also is expected to be increasingly used in the corporate world for the secure exchange of documents online.

The EU delayed Wednesday's decision by 10 days to review concessions offered by the companies to address potential competition problems. But EU spokeswoman Amelia Torres said "the commission's concerns were not entirely addressed."

Spokespeople for both companies declined to comment on specifics, saying only that they were "cooperating fully" with the probe.

"We understand that this is a complex area," Microsoft spokesman Dirk Delmartino added.

The EU could still decide to clear the deal, but the opening of a relatively rare, four-month investigation indicates 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. 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.

The current deal involves another U.S. company, ContentGuard Inc., which develops software to protect films, books, music, video games and other digital media distributed on the Internet from illegal use or copying.

Last April, Time Warner joined Microsoft, an existing investor, to buy most of Xerox Corp.'s ownership of ContentGuard, based in Bethesda, Md. The companies gave no figures but Xerox, which retains a small equity stake, reported earnings of $83 million from the sale.

Other partners include Japanese giant Sony Corp., but they also face industry pressure to make any Microsoft-backed standards compatible with as many devices and online stores as possible.

The EU said it was worried the new firm "may have both the incentives and the ability to use its (copyrights) to put Microsoft's rivals ... at a competitive disadvantage ... (and) could also slow the development of open interoperability standards."

The Internet release four years ago of Stephen King's novella, "Riding The Bullet," demonstrated both the potential and the pitfalls of electronic distribution. The book racked up 400,000 paid downloads in the first day, but hackers broke its encryption code and pirated copies were soon all over the Web.

Microsoft already is under close scrutiny by European regulators.

In March, the EU slapped it with a record fine of 497 million euros ($596 million) for monopoly abuses, including the Media Player issue. Microsoft has appealed at a European court to overturn the fine and requirements to change the way it sells Windows.

New York-based Time Warner has also clashed with Brussels, winning approval in 2000 of its merger with the leading Internet service America Online only after agreeing to abandon its purchase of the London-based EMI record label.

A new deadline of Jan. 6 was set for a decision on the latest deal.

No antitrust filing was required in the United States because the deal didn't cross the jurisdictional threshold.

But companies doing business in Europe have to comply with EU law as well, and Torres said the deal did meet the threshold for EU review. That requires total worldwide sales for the companies involved of at least 5 billion euros, and at least 250 million euros of that within the 25-nation bloc.