Rumor: EU to Nix Microsoft DRM Deal

Microsoft and Time Warner may think their control of DRM technology vendor ContentGuard
is a done deal, but the EU may try to block a final acquisition.

Reuters reported on Friday that unnamed sources said the European Commission on Competition,
the entity charged with regulating antitrust matters, would say no to the buy.

Microsoft and Time Warner all but own the company already.
Four-year-old ContentGuard was a spin-off company set up to commercialize DRM technology
developed at Xerox’s PARC research center. Microsoft became a strategic investor,
along with Xerox, when the company launched in 2000.

Time Warner bought in after AOL, which at the time owned Time Warner,
settled an antitrust
suit against Microsoft for crushing the Netscape browser in 2003.

After the two companies announced in April 2004 that they had
bought out Xerox’s stake
in Bethesda, Md.-based ContentGuard, they asked for the EU’s blessing on the deal under the
European Union’s Merger Regulation.

After a routine review, the commission on Aug. 25
opened an in-depth probe into
whether the deal might further consolidate Microsoft’s dominance in DRM technology.

In a statement, the European Commission said, “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.”

European Commission spokesperson Anthony Gooch said that the second phase of the review has a
Jan. 6 deadline for completion, and the ruling could come at any time between now and then.

“Our policy on these things is that we go public on mergers at only two states in the review
process, at the end of the phase one, the routine four-week review, and at the end of phase two,
the in-depth probe,” Gooch said. “At the moment, we’re still in phase two. When we complete that, we’ll
go public on what the results are.”

ContentGuard develops and owns 16 patents, with more in the pipeline. Its XrML is the basis of the
recently approved ISO MPEG REL standard; it’s one of two components of MPEG-21 that enable the assignment
of rights to digital objects.

According to Jupiter Research, U.S. companies will spend some $274 million on enterprise DRM software
by 2008, up from $36 million this year. (JupiterResearch and are both owned by Jupitermedia.)

Microsoft uses ContentGuard’s technology for its Rights Management Services enterprise information
protection services; Time Warner has not disclosed how it intends to use ContentGuard’s technology.

A Time Warner spokesperson declined to comment on the rumor or to discuss whether it had planned a response if the ruling were negative. ContentGuard executives declined comment, and Microsoft executives did not respond to a request for comment.

The EU’s Gooch pointed out that third parties sometimes spread rumors such as the one that the EU
will nix the ContentGuard buy for their own ends.

“We never, ever leak on competition cases,” Gooch said. “People speculate, and others use the press to
try and influence a little bit. It’s not unknown. But this is the one where you want to listen to the horse’s
mouth. And in this case, the horse’s mouth isn’t speaking.”

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