The US software group must now remove its Windows Media Player digital media software from some versions of the operating system in Europe, to comply with a European Commission ruling in March. The Commission also fined Microsoft a record €497 million (£347 million) for abusing its dominance of the software market.

The company said the new version would be on sale as an alternative to the full Windows program by February.

The company had called on the Court of First Instance, Europe’s second-highest court, to suspend sanctions pending the completion of its appeal against the Commission’s ruling.

But Bo Vesterdorf, president of the court, said yesterday that Microsoft had failed to prove that the sanctions would cause “serious and irreparable damage”. The appeal process could take several years to complete.

The company will also be forced to make its Windows protocol — the key to the operation of the software — available to rivals, such as Sun Microsystems.

Media Player competes with Apple’s QuickTime and RealPlayer, made by RealNetworks.

Brad Smith, general counsel for Microsoft and a senior vice-president of the company, said: “There is the potential cause for optimism in the court’s discussion of the merits of the case.” He said the court had recognised that the company had “powerful arguments” that should be considered in the appeal, and that this “could well enable us to win at the end of the day”.

He added that the decision on whether to appeal had not been taken.

Microsoft hopes that it can use the judgment to begin negotiations on a settlement of the wider appeal, in keeping with a settlement reached with the US Justice Department on similar charges in 2002.

Industry observers said the likelihood of talks with European regulators was questionable. Philip Carnelley, a director of Ovum EuroView, the technology research group, said: “Microsoft’s hope that it could negotiate a settlement with the EU is clearly now unrealistic.”

A spokesman for the Commission said: “We are not in a process of renegotiation.”

But analysts played down the importance of the Commission’s sanctions, saying there would be little demand from computer manufacturers and consumers for a “degraded” version of Windows.

“The Windows Media Player sanction is, of itself, a comparatively minor irritant,” Mr Carnelley said. He said most users would still download the software or buy a version of Windows with Media Player.

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