By AP Business Writer
updated 11/22/2004 1:40:50 PM ET 2004-11-22T18:40:50

French technology company Thomson SA said Monday it was joining Microsoft Corp. and Time Warner Inc.'s proposed venture to make anti-piracy software, a move that could relieve European Union concerns about the pending deal.

In a joint statement, the companies said Thomson has agreed to purchase a 33 percent voting stake in U.S.-based ContentGuard, changing the deal from a two-company joint venture to three.

Together, they aim to develop new standards in so-called digital rights management technologies, which allow online access to movies, music and other digital content while protecting it from unauthorized copying and counterfeiting.

Regulators say the burgeoning technology also could be critical to businesses that need to guarantee a secure exchange of documents.

Microsoft and Time Warner, a new investor, bought out most of Xerox Corp.'s stake in ContentGuard last April, but ran into problems with the European Commission, which threatened this month to block the deal because of fears of Microsoft's market power.

Time Warner and Microsoft gave no figures last April but Xerox, which retains a small equity stake, reported a gain of $83 million from the sale.

Under the new arrangement, Thomson, Microsoft and Time Warner will each name two directors to Contentguard's board, the statement said.

Thomson's investment adds a "European-headquartered partner that will make this important technology more accessible," especially in Web services and devices, Microsoft chairman Bill Gates said in the joint statement.

Although Microsoft spokesman Tom Brookes called the deal "business driven," it could also help Microsoft avoid another clash with EU antitrust regulators.

The EU sent a confidential charge sheet -- known as a statement of objections -- to Microsoft and Time Warner this month threatening to block the deal because of concerns about market foreclosure, sources said on condition of anonymity.

But a restructuring that made it impossible for one partner to control the joint venture would probably not even require a Brussels review, one said.

The Microsoft-Time Warner deal didn't require antitrust review in Washington because of different rules governing joint ventures.

Under the EU's merger timetable, regulators have until Jan. 6 to decide on the deal, and negotiations have been underway to try to rescue it, sources said. Brookes said the Commission was notified Monday morning about Thomson joining the partnership.

In August, the Commission said it was worried about Microsoft's ability to turn its "leading position" in digital rights management into a dominant position.

That echoes charges the EU made in March, when it ordered the software giant to remove its Media Player program from its ubiquitous Windows operating system to prevent the market for digital media players from "tipping" to a Microsoft monopoly.

Microsoft has asked a European judge to suspend that order pending its appeal. A decision on the suspension is expected within weeks.

Copyright 2004 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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