Microsoft suffered a decisive antitrust defeat on Monday when a European Union (EU) court upheld a landmark ruling that the world's largest software maker had abused its dominant market position to crush rivals.

The second-highest EU court dismissed the company's appeal on all key points against the 2004 European Commission ruling and upheld a record €497 million (US$689.9 million) fine.

Drop in market share

A jubilant EU Competition Commissioner Neelie Kroes said the ruling should lead to a "significant drop" in Microsoft's 95 per cent market share.

Microsoft's top lawyer said it would affect the way the company markets its products in future.

"It's clearly a major defeat for Microsoft. There is no doubt it will spur the commission on to regulate Microsoft much more significantly," said Chris Bright, a British competition lawyer.

The court said Microsoft was unjustified in tying new applications to its Windows operating system in a way that squeezed out rivals and harmed consumer choice.

The verdict may be appealed but only on points of law and not of fact, and may force Microsoft to change its business practices. It also gives Kroes a green light to pursue other antitrust cases and complaints involving Intel, Qualcomm and Rambus, and to issue new antitrust guidelines that were put on ice pending the ruling.

The court endorsed commission sanctions against Microsoft's tying together of software and refusal to give rival makers of office servers information to enable their products to work smoothly with Windows.

It annulled only the EU regulator's imposition of a Microsoft-funded trustee to monitor compliance.

- Reuters