The European Court of First Instance rejected the software titan's call for a suspension of European Commission punitive measures until its appeal -- likely to take 18 months -- was complete.

As a result, the fine levied by Brussels in March of 497 million eurosmillion dollars) stands.

Microsoft also must offer consumers in Europe a stripped down version of Windows without the built-in Media Player music and video software. It also was forced immediately to reveal secret software code to let competitors tailor their programs more easily to the operating system.

When billionaire Bill Gates' company said it still hoped for a negotiated out-of-court settlement, it was abruptly rebuffed.

"The commission's decision of March 2004 stands. Therefore by definition we are not in the process of renegotiation," commission spokesman Jonathan Todd told reporters.

"The court has confirmed that decision. It should be implemented immediately," he said.

It represented a significant cooling in the reception Microsoft had received in the United States, and a challenge to its strategy of using its cash hoard to help resolve legal wrangles.

Microsoft reached a 1.6-billion-dollar antitrust and patent settlement in April with Sun Microsystems.

In the same month, it announced it would pay InterTrust Technologies 440 million dollars to license the company's patent portfolio, settling InterTrust's lawsuit.

Microsoft sealed an undisclosed settlement with consumers from the US state of Minnesota for alleged overcharging, and paid out a total of 1.55 billion dollars, including 1.1 billion in California, to settle claims from other states.

The European case, however, appeared to have halted the run.

"It's a clear setback to Microsoft in Europe, making any settlement unlikely," said a report by SG Cowen analysts.

New York University professor Nicholas Economides, a specialist in network industries and antitrust law, said the process may be unstoppable.

"In the legal system, when evidence has been gathered, it's almost impossible to stop it," Economides said.

Microsoft's most spectacular settlement was in the huge US antitrust case dating back to 1998, which ended with a deal with the Justice Department in November 2001, approved by a federal judge a year later.

In that settlement, Microsoft agreed to change certain business practices, such as giving PC makers more flexibility in configuring their "desktops" to allow more rival software to be displayed.

When the European Commission first came out with the fine and product curbs in March, the US Justice Department came out swinging in favor of the Redmond, Washington-based software giant.

"Imposing antitrust liability on the basis of product enhancements and imposing 'code removal' remedies may produce unintended consequences," the department's antitrust chief R. Hewitt Pate said at the time.

"Sound antitrust policy must avoid chilling innovation and competition even by 'dominant' companies. A contrary approach risks protecting competitors, not competition, in ways that may ultimately harm innovation and the consumers that benefit from it," he said.

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