The European Commission and software giant Microsoft have not been able to settle anti-trust charges, meaning a landmark ruling against the company could be adopted next week, that would target it as an abusive monopoly.
European Union Competition Commissioner Mario Monti told reporters in Brussels that, after several days of talks, no settlement was possible.
"We made substantial progress toward resolving the problems that had arisen in the past, but we were unable to agree on commitments for future conduct," he said. "In the end, I had to take a decision - to decide what was best for competition and consumers in Europe."
The EU decision, which is to be adopted next week, will require Microsoft to supply a second version of its Windows operating system, without the built-in audiovisual software, called Media Player. The Commission has said this unfairly hurts rivals such as RealPlayer.
Brussels will also order Microsoft to share information with rival server makers, and impose a fine that could be hundreds-of-millions of dollars.
In addition, Microsoft will be found to have abused its dominant market position in the EU, which could clear the way for additional legal action against the company in all EU countries. The EU expands to 25 nations in May.
In a statement, Microsoft chief executive Steve Ballmer said the two sides were not able to agree on principles for new issues that could arise in the future. But he expressed hope that perhaps the case can be settled at a later stage.
Commissioner Monti said he wants the case to send a message.
"I believe that competition and consumers in Europe will be better served with a decision that creates a strong precedent," he said. "It is essential to have a precedent, which will establish clear principles for the future conduct of a company with such a strong dominant position in the market."
Commissioner Monti also praised what he called the constructive and cooperative spirit of the Microsoft negotiating team.
Microsoft can appeal against any European Commission decision on sanctions in EU courts.