Microsoft has lost its appeal against the hefty €497 million penalty imposed on it by the European Commission in a competition dispute since 2004. The European Court of First Instance upheld the ruling that Microsoft had abused its dominant market position.

The probe concluded in 2004 that Microsoft was guilty of freezing out rivals in server software and products such as media players. The antitrust order had found the company broke competition law for abuse of a dominant position and fined the software maker a record €497 million.

Microsoft had challenged the EU''s original 2004 antitrust order at the EU''s Court of First Instance.

Last year it was told to pay daily fines adding up to €280.5 million over a six-month period, after it failed to adhere to the 2004 decision.

In February this year, the EU had complained that three years after the landmark antitrust ruling to open up the market, the US software giant had still refused to cooperate. Under the 2004 ruling by the European Union, Microsoft had to disclose complete and accurate interface documentation on reasonable and non-discriminatory terms, allowing its competitors to interoperate with Windows PCs and servers.

Under a so-called "statement of objections," the EU''s Executive Commission said there was "no significant innovation" in the requested information. It also rejected 1,500 pages of submissions by Microsoft in February and said Microsoft''s price proposals were unreasonable.

Microsoft now has two months to appeal at the European Court of Justice.

"The Court of First Instance essentially upholds the Commission''s decision finding that Microsoft abused its dominant position," the court''s statement said. Microsoft''s top lawyer said it was important now for the company to comply with EU competition law, but that it had not yet decided on its next legal steps.

The court, however, faulted the European Commission''s ruling that had established an independent monitoring trustee to supervise Microsoft''s conduct, in imposing on Microsoft that it allow the monitoring trustee, independent of the Commission, to access its information, documents, premises and employees and also to the source code of its relevant products.

Microsoft has now been ordered to pay 80 per cent of the Commission''s legal costs, while the Commission has to carry a part of Microsoft''s costs.