The European Union is examining charges that Microsoft's .NET Passport system breaks EU rules on data privacy, a European Commission official said yesterday. The official expected member-states to make a formal announcement after July 1st.

The official was commenting after Microsoft called a news conference to deny that the Commission or any EU state was formally investigating the .NET Passport system of collecting personal data from internet users.

"Not one of the 15 member-states or the European Commission is investigating Passport," Mr Peter Fleischer, senior attorney for law and corporate affairs at Microsoft, told reporters. He was referring to reports last month that the EU was examining whether the system complied with strict EU rules on data protection.

The Commission official confirmed no formal inquiry had yet started but suggested action might be in the pipeline. "It is correct to say there is no formal investigation at the moment," he said. "But the issue is under consideration and we are hoping for some kind of announcement from the member-states after July 1st."

EU national privacy controllers, the officials charged with monitoring compliance with EU privacy laws, are due to meet on July 1st, the official added.

Earlier this month, the EU executive said in a letter to a member of the European Parliament it was "a matter of priority" for it to look into Microsoft's .NET Passport service in co-operation with EU member-states.

Several national privacy controllers said last month that associations aimed at protecting privacy had been asking governments to open an investigation and could get their way.

Mr Fleischer said Microsoft was in a "constructive dialogue" over this issue with the Commission and EU states, but would not give details of what specific concerns the Commission had about .NET Passport.

Under EU data privacy rules, customers' personal data can only be used by a firm or passed on to others with prior consent from the individual.

While the Commission has authority to help member-states interpret EU law, legal action would be initiated by the individual member-states.

Privacy groups and their allies argue that Microsoft's free .NET Passport service collects personal information while consumers are making purchases, playing games or doing bank transactions online.

Mr Richard Purcell, Microsoft's corporate privacy officer, denied the allegations, saying that customers gave data on a voluntary basis.