Microsoft Sees Adobe Trouble Brewing

Updated from 2:33 p.m. EDT

Microsoft (MSFT) expects Adobe Systems (ADBE) to file a complaint with European regulators over antitrust concerns.

Over the last week, the two software companies reached an impasse in talks concerning Microsoft's plans to incorporate Adobe's portable document format (PDF) and its own related technology in upcoming versions of its software, a Microsoft representative said. In response to the breakdown in talks, Adobe has indicated to Microsoft that it plans to take the issue to the European Union's antitrust regulators.

"We're hoping they don't, but that is what we are expecting," said the Microsoft representative, who asked not to be named.

The Wall Street Journal reported Friday that the breakdown in talks between the two companies would likely lead to Adobe filing a lawsuit against Microsoft in Europe. But the Microsoft representative stressed that what they expected was a regulatory complaint, not a lawsuit.

Microsoft has faced antitrust scrutiny by European regulators before. The company is still embroiled in a dispute with the EU concerning software used to play digital media files. Following complaints by RealNetworks (RNWK), whose RealPlayer software and technology competes with Windows Media, European regulators forced Microsoft to offer two different versions of Windows, one with and one without its Windows Media Player. They also have assessed a nearly 500 million euro fine on the company. Microsoft has appealed the ruling.

The prospective legal dispute between Adobe and Microsoft and concerns the software behemoth's move to incorporate Adobe's portable document format (PDF) technology into the next iteration of Microsoft's Office suite. Negotiations between the two companies concerning Microsoft's use of PDF broke down earlier this week, Brad Smith, Microsoft's general counsel told the Journal.

The core point of contention between the two companies is whether Microsoft will charge Office customers an extra fee for the PDF feature, the Journal reported. Adobe, which wants Microsoft to charge for the feature, has insisted that Microsoft separate the feature from Office. Microsoft has agreed to remove the feature but does not want to charge for it, company spokeswoman Stacy Drake said in a statement.