European Commission Opens In-Depth Investigation into ContentGuard Acquisition by Microsoft and Time Warner
Commission Opens In-Depth Investigation into Microsoft/Time Warner/ContentGuard JV
Brussels. August 25, 2004.
The European Commission has decided to open an in-depth investigation into the proposed joint acquisition by Microsoft and Time Warner of a US company called ContentGuard. After a preliminary review, it appears to the Commission that the transaction might possibly create or strengthen a dominant position by Microsoft in the market for Digital Right Management (DRM) solutions. In the course of the investigation, the Commission will also investigate further competition concerns related to the vertical integration of Microsoft in other markets.
On 12 July , Microsoft and Time Warner, both US companies, sought clearance under the European Union's Merger Regulation for plans to jointly acquire a US company called ContentGuard, formerly controlled by Xerox. ContentGuard is active in the development and licensing of intellectual property rights (IPRs) relating to DRM solutions.
DRM technology makes it possible to "hardwire" in digital content the content owner's rights, and to prevent illegal use (such as illegal copying). Originally focussed on avoiding piracy of audio digital content, DRM is forecasted to be increasingly used for confidentiality purposes, in particular to secure exchange of documents in the corporate field.
After a routine, phase I, review, the Commission has decided to investigate whether the deal might create or strengthen Microsoft's already leading position in the DRM solutions market. Under Microsoft's and Time Warner's joint ownership, ContentGuard may have both the incentives and the ability to use its IPR portfolio to put Microsoft's rivals in the DRM solutions market at a competitive disadvantage. This joint acquisition could also 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 forecasted to become pervasive throughout the entire IT industry. As a consequence, the notified concentration may have spill-over effects on a number of related markets ranging from mobile telephony to word processors.
The opening of a second-stage merger investigation does not prejudge the Commission's conclusions and final decision, which must be reached in a maximum of four months, i.e., until 06 January 2005.