The European Commission has opened a probe into Microsoft's and Time Warner's plans to buy anti-piracy software manufacturer ContentGuard.
This is the latest in many legal challenges for Bill Gates' Microsoft
It is concerned that the deal could give Microsoft too dominant a position within digital rights management.
The Commission said it expects to reach a decision by 5 January next year.
Microsoft is already appealing against a 497m euros ($604m; £333m) fine from the European Commission for anti-competitive behaviour.
US giants Microsoft and Time Warner agreed in April to buy out most of Xerox's stake in ContentGuard.
European regulators said the probe will involve a review of ContentGuard's integration into Microsoft's other product areas.
"The notified concentration may have spill-over effects on a number of related markets ranging from mobile telephony to word processors," the Commission said.
Microsoft spokesman Dirk Delmartino said the company understood that it was a "complex area".
Digital rights management or DRM technology makes it possible to prevent illegal copying of CDs, DVDs, computer games, software systems, and even sensitive electronic documents.