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EU probes Microsoft deal on anti-piracy

By PAUL GEITNER
The Associated Press

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Microsoft — already fighting to overturn last March's EU ruling that it abused its dominant position with the Windows operating systems — and Time Warner both said they were "fully cooperating" with the EU probe after initial efforts to head it off fell short.

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

In opening the in-depth, four-month probe, the European Commission said it was worried about Microsoft's ability to "tip" burgeoning demand for so-called "digital-rights management" in its favor, turning what is already a "leading position" in that market into a dominant one.

That echoes controversial charges the EU made in March, when it ordered Microsoft to remove its Media Player program from Windows to prevent that segment of the market from "tipping" to a Microsoft monopoly.

The current deal concerns ContentGuard, a Bethesda, Md.-based company that develops technology for digital-rights management, or DRM, to protect films, books, music, video games and other media distributed on the Internet from illegal use or copying.

Such software enables legal download services like Apple Computer's iTunes music store to ensure proper royalties are collected, and also is expected to be increasingly used in the corporate world for the secure online exchange of documents and e-mails.

With revenues expected to climb, "companies like Microsoft and Time Warner see DRM as a ripening plum they are anxious to pick," said Joe Wilcox, senior analyst with JupiterResearch in Maryland.

Last April, Time Warner joined Microsoft, an existing investor, to buy most of Xerox's ownership in ContentGuard. No figures were released but Xerox, which retains a small equity stake, reported earnings of $83 million from the sale.

The companies said at the time they hoped to develop "new standards and technologies" along with partners like Japanese giant Sony.

But they also face industry pressure to make any Microsoft-backed standards compatible with as many devices and online stores as possible.
 
Dario Betti, senior analyst with the Ovum consultancy in London, said rivals have complained about the possibility of Microsoft pushing unfair licensing terms or undermining compatibility.

"This is not surprising — the industry distrusts Microsoft and remembers its past predatory strategies," he said by e-mail.

But he added that he thinks the digital-rights market is still healthy enough to prevent such scenarios.

Wilcox noted Microsoft is "one of several" companies offering rights protection for documents, while Apple is the "clear leader" in music, and video distribution is still in its infancy.

"While Microsoft is a DRM early leader, I wouldn't say the company is dominant," he said in an online interview.

The EU, however, said it 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."

It delayed yesterday's decision by 10 days to review concessions offered by the companies, but EU spokeswoman Amelia Torres said "the commission's concerns were not entirely addressed."

A new deadline of Jan. 6 was set for a decision.

The EU could still decide to clear the deal, but the opening of a relatively rare, phase two investigation indicates serious reservations.

It also could add to tensions with Washington, D.C., over antitrust policy, with U.S. critics accusing the EU of undermining global business.

No antitrust review was required in Washington, D.C., on this deal because it didn't cross the jurisdictional threshold. But a negative decision in the EU could scuttle it anyway, as happened in 2001 when the EU blocked General Electric's attempt to merge with Honeywell.

Companies doing business in Europe have to comply with EU law, 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 ($6 billion), and at least 250 million euros ($300 million) of that within the 25-nation bloc.

Microsoft is the world's largest software maker, and Time Warner the biggest media company.

Information from Bloomberg News is included in this report.

Regulator in Brazil fines Microsoft

Microsoft was fined by Brazil's antitrust regulator, which alleged the company failed to use a competitive process to choose a dealer for business with the federal government.

The regulator's six-member board voted unanimously in favor of fining Microsoft 10 percent of its 1998 sales to the government, Elizabeth Farina, the board's president, told a group of journalists and lawyers who observed the vote in Brasília.

The exact amount of the fine will be determined after the regulator assesses how much revenue Microsoft earned from the federal government in 1998, Roberto Pfeiffer, a member of the board, said in an interview.

The regulator alleges that Microsoft manipulated the criteria to choose a single representative to handle contracts with the government. "The practices carried out limited competition," Pfeiffer said.

Microsoft said in an e-mailed statement that its 1998 business practice, which the company has since changed, "was in accordance with Brazilian legislation."

"We have collaborated over the past six years with the Brazilian authorities and we will continue to work closely with the antitrust authorities in Brazil," Rinaldo Zangirolami, Microsoft's senior attorney in Brazil, said in the statement.

Bloomberg News