Microsoft Corp. outfoxed the European Commission on Tuesday when Brussels was forced to drop a probe of its joint bid for anti-piracy software firm ContentGuard Holdings Inc., saying it lacked jurisdiction.
Minutes after the Commission announcement, Microsoft and its partners, Time Warner Inc. and France’s Thomson, announced they had completed the three-way deal.
The deal involves key patents for the potentially lucrative market in digital rights management software, which prevents the sort of swapping of music and movies that Web surfers once did through Napster.
(MSNBC is a Microsoft-NBC joint venture.)
When Microsoft and Time Warner ran into problems with the EU regulator last year, they decided to make Thomson an equal partner in a consortium seeking control over ContentGuard.
The Commission has no legal authority to review mergers and acquisitions involving more than two equal co-owners.
Companies must submit deals for review only if they might exercise “decisive influence” in another firm, European Union rules say. That means a single company must be able to block decisions, which is impossible with three equal partners, in the Commission’s view.
“The transaction is not subject to EU merger rules,” the EU executive acknowledged in a statement.
Microsoft said: “Given the resulting ownership and control structures, the new operation is not to be reviewed under the EU Merger Regulation.” It withdrew the merger application.
Microsoft and Time Warner had initially expected no problems in gaining approval but the Commission surprised them in August by opening an in-depth probe. It said Microsoft might gain or boost a dominant position in digital rights.
The Commission last year imposed its biggest antitrust fine on Microsoft in a separate case, ruling that it abused its dominant market position in audiovisual software and servers, ordering the U.S. giant to change its business practices.
A year later Microsoft has yet to comply with sanctions in the case and Competition Commissioner Neelie Kroes told reporters on Tuesday: “They have to be aware that it is serious and that we want to have (an) answer that is serious.”
Antitrust concerns
Commission Competition Director Philip Lowe acknowledged the EU executive had no alternative but to withdraw in the ContentGuard case, but added: “That doesn’t necessarily remove any antitrust concerns in the long term.
“We’ll have to monitor what goes on in the market,” he told reporters at the European Parliament.
The Commission has authority to examine plans by companies to limit competition in the marketplace.
ContentGuard of Bethesda, Maryland is one of the world’s leading patent holders of software that protects digital media, including music, films and documents.
It was mostly owned by Xerox until the purchase by Microsoft and Time Warner.
Time Warner, the world’s largest media company, wants to use the Internet to market its vast media portfolio, including Bugs Bunny as well as companies such as America Online, CNN and People magazine.
Digital rights management is an essential part of that equation.
For Microsoft, digital rights management software will become an important component in its bid to compete in the digital music arena and to transform the personal computer into a hub for all digital entertainment in the living room.
Thomson, for its part, is in the process of trying to transform itself from a low-margin consumer electronics company into a high-margin provider of services to media companies and film studios.
