ContentGuard specializes in software that protects digital material from counterfeiting.
Microsoft is already the worlds largest supplier of digital rights management software, which comes packaged with the latest version of its audio- and video-playing software, Media Player.
Microsoft uses ContentGuard technology under a license in its development of rights management systems and services.
In April, Microsoft and Time Warner announced that they would acquire a majority of ContentGuard, a small company spun out of the Xerox Palo Alto Research Center, leaving Xerox as a minority owner.
At the time, Microsoft and Time Warner said they wanted to use ContentGuard to develop standards in digital rights management to help protect a variety of creative content.
The commission spokeswoman, Amelia Torres, said Wednesday that European competition regulators suspected that the acquisition might allow Microsoft to dominate this new, rapidly growing sector of the software market.
The combination could create an industry standard, the commission said, attracting all online media companies and thereby doing away with competition in digital rights management software.
During the investigation, expected to last four months, regulators will try to determine what would be better for consumers: one large supplier of digital rights management software, or the emergence of a standard technology that could be offered by many providers.
Both Microsoft and Time Warner declined to comment. Antitrust regulators in the United States are not investigating the deal.
Competitors in digital rights management software include the California-based InterTrust Technologies, which was acquired last year by Sony and its Dutch consumer electronics rival, Philips Electronics.
Media companies like Time Warner consider digital rights management software to be an essential tool for keeping track of who is viewing or listening to their copyright-protected works on the Internet and on portable digital players.
PAUL MELLER / NY TIMES