ContentGuard's technology was developed by Xerox, and the copier company will retain a majority stake in the new firm. Other investors are expected to be announced later.
ContentGuard's software is a digital-rights management suite, which includes an electronic publishing clearing service that will be offered jointly with Microsoft partner Reciprocal.
New controls on digital content
The company's software can protect and manage digital content, including books, sheet music and documents such as patent applications and business reports. The company is working on technology to protect audio and video material.
ContentGuard also allows publishers to release time-restricted content, set up one-time use rules and issue book previews by chapter.
Microsoft will use ContentGuard technology in future versions of its own software, including Microsoft Reader -- software to display electronic books.
Microsoft also plans to use the technology in future versions of Windows Media Player and Windows Media Rights Manager.
"A key part of Microsoft's vision for enabling Web-based commerce is the creation of seamless and easy-to-use solutions for protecting the rights of authors and publishers to provide consumers with digital content," said Microsoft CEO Steve Ballmer.
Michael Miron will be CEO of the new company, which was formerly known as the Xerox Rights Management group.
In March 1999 Microsoft made an equity investment of an undisclosed amount in Reciprocal and announced plans to incorporate Reciprocal's digital-rights management technology into Windows.
Last year Microsoft and Xerox announced an alliance to make it easier for businesses to share digital information.
