The EC has set up an in-depth investigation into Microsoft and Time Warner's plans to take over US digital rights management company ContentGuard Holdings.
The Commission fears the takeover might create or strengthen a dominant position for Microsoft.
It will also investigate competitive concerns arising from the vertical integration of Microsoft in other markets, it said.
In April, Microsoft announced that it was increasing its investment in ContentGuard and Time Warner said that it was adding a new cash injection.
Together the companies purchased most of the stock previously held by ContentGuard's original technology provider Xerox. The value of their investments has not been disclosed.
They sought clearance for the deal from the EU in July, when the EC opened a preliminary investigation. The in-depth second phase investigation could take up to four months, the commission said.
Microsoft and Time Warner are keen to invest in digital rights management. Concerns have been raised, however, that they could wield their combined power to dominate the market.
The EC probe will evaluate whether the ContentGuard deal will put their rivals at a disadvantage or slow development of open interoperability standards, which could tip the market toward the current leading provider, Microsoft.
The digital rights management market is expected to generate revenue of around $563m (£313m) by 2007, said IDC, predicting that more than 70% of that revenue would be derived from the Windows operating environment.
Scarlet Pruitt writes for IDG News Service