Microsoft Corporation suffered a major legal setback Monday when a European Union court rejected the software giant's appeal of a 2004 anti trust ruling. The court also upheld a record fine of more than $600 million which Microsoft has now been ordered to pay. Microsoft has not yet decided whether to appeal the new ruling. Teri Schultz reports from Brussels.

But the European Court of First Instance in Luxembourg agreed with the Commission ruling that Microsoft's actions had prevented other manufacturers from selling their media players to Windows users.

The Court said Microsoft must offer versions of Windows that do not contain a media player. European Union Competition Commissioner Neelie Kroes expressed satisfaction at the ruling.

Neelie Kroes, 17 Sep 2007

But despite winning the nearly decade old battle and solidifying the Commission's right to regulate powerful companies, Kroes said she had mixed emotions.

"It is bittersweet, bittersweet, because the court has confirmed that consumers are suffering at the hands of Microsoft," she said.

Microsoft General Counsel Brad Smith expressed disappointment at the ruling, but said it could have been worse.

"The decision is not what we had hoped for and to say anything else would be less than candid," said Brad Smith. "But it does provide us with some new clarity."

Smith says the company intends to comply fully with the 2004 Commission judgment that was at issue. He says he's pleased the Court is requiring that they simply offer an alternative version of Windows without a player - which already exists - and not to stop selling the complete version.

The second part of the ruling, which mandates Microsoft servers must be interoperable with all other systems', is more complex because of the valuable intellectual property involved. However, Smith said, Microsoft has already made progress in increasing interoperability and will continue working on it.

Experts said the outcome of this case would be a defining moment in the relationship between government regulators and fast-moving high-tech industry. Smith agrees with that assessment, acknowledging the Commission had been awarded what he called "broad power" and "broad discretion."

"This decision will occupy - as it should - the thoughts and discussion of many people, not just in the weeks ahead but in the months and years to follow," he said. "It is one of these decisions that has that kind of extraordinary impact."