The European Commission has started an investigation into whether IBM’s proposed takeover of software company Telelogic will create a monopoly.

Big Blue announced in June it would buy Telelogic for a reported €550m (£381m).

But the two firms are direct competitors in the software modeling and requirements management tools market and the Commission has concerns about the two leading software developers joining forces.

The buyout would make IBM by far the largest supplier of such tools, said competition commissioner Neelie Kroes.

“It is the Commission’s duty to thoroughly analyse the effects of such a transaction and to ensure that it would not harm competition in the software development tools sector,” said Kroes.

According to EU antitrust rules, the commission has until 20th February 2008 to make a decision about whether the buyout will take place.

The case follows the European Court’s decision to reject Microsoft’s appeal against an EU ruling finding the software company guilty of abuse of its market dominance. A €497m (£345m) fine and an order to share details to allow interoperability for competitors' products was upheld.

Modeling tools are designed to help software developers test their ideas before developing the new programmes. Requirements management tools streamline and document a development team's analysis of the requirements.