The European Commission has set out its formal objections to Microsoft and Time Warner taking control of digital rights management company ContentGuard Holdings.
The commission, the EU's monopoly regulator, has listed the reasons why it thinks the joint venture might create or strengthen a dominant position in the market.
However, sources familiar with the case predict the commission will wave the acquisition through as long as Microsoft and Time give third parties access to the technology through licensing.
In August, the commission began an in-depth investigation into whether joint ownership by Microsoft and TIme might give ContentGuard the incentive and the ability to use its intellectual property rights to put Microsoft's rivals in the digital rights management market at a competitive disadvantage.
The commission was also concerned that the acquisition could slow down the development of open interoperability standards and tip the digital rights management market towards the current leading provider, Microsoft.
Despite the commission's anxieties, a settlement seems likely on the basis of access to ContentGuard technology under fair licensing terms.
The two companies have two weeks to respond to the commission's statement and may request a hearing to present their arguments.
The companies will have to present any settlement terms ahead of the 6 January deadline for the commission's final decision on whether to approve or veto the merger.
Simon Taylor writes for IDG News Service