Digital technology is an increasingly important priority for movie and video makers, recording companies and software firms.
The European Commission reviews transactions for companies which do a large portion of their business in Europe in order to protect European consumers.
The European Union executive will say in its statement Of objections it is concerned the deal could create or boost a dominant position by Microsoft in the market for digital rights management.
The Commission is concerned the deal would also lead to the vertical integration of Microsoft in other markets.
Companies such as Microsoft and Time Warner are investing heavily in DRM technology to protect digital content.
Japan's Sony, the world's biggest consumer electronics company and also a content provider, licensed ContentGuard's DRM technology in 2002.
ContentGuard has been held largely by Xerox, which had provided much of the company's basic technology. Xerox is retaining a small equity investment in ContentGuard.
The Commission, which is conducting a four-month investigation of the deal, has a deadline of Jan. 6 to reach a decision.
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