European Commission President Jose Manuel Barroso said the judgment by the Court of First Instance "confirms the objectivity and the credibility" of the EU's approach to competition issues.
"This policy protects the European consumer interest and ensures fair competition between businesses" in the 27-nation bloc, Barroso said in a statement.
Competition Commissioner Neelie Kroes urged Microsoft to now move quickly to "comply fully" with the 2004 antitrust ruling and said the decision sets "an important precedent" and warning to other high-tech companies that they must comply with EU antitrust laws.
"The court has upheld a landmark Commission decision to give consumers more choice in software markets," Kroes said. "Microsoft must now comply fully with its legal obligations to desist from engaging in anticompetitive conduct. The Commission will do its utmost to ensure that Microsoft complies swiftly ... I will not tolerate continued non-compliance."
Kroes said the EU would study what further implications the rejection of Microsoft's appeal will have on antitrust enforcement in the technology sector and other industries.
As the ruling by the Luxembourg-based court circulated, opponents and proponents weighed in, with some saying it proved that government regulation can rein in companies and provide a level field for competition and development.
"Microsoft can consider itself above the law no longer," says Georg Greve, president of the Free Software Foundation Europe, or FSFE. "Through tactics that successfully derailed antitrust processes in other parts of the world, including the United States, Microsoft has managed to postpone this day for almost a decade. But thanks to the perseverance and excellent work of the European Commission, these tactics have now failed in Europe."
The European consumers' organization BEUC said the decision should bring more competition and lower prices for buyers.
"Microsoft argued that their approach offered convenience to consumers, but convenience without strong competition can be a bad bargain," said Jim Murray, director of BEUC.
RealNetworks - which settled with Microsoft over bundling practices two years ago - called the decision the correct one, adding that the court, Europe's second highest, "was right to uphold the European Commission's conclusion that Microsoft cannot use its operating system monopoly to provide its applications with an unfair advantage."
In doing so, said Bob Kimball, senior vice president for legal and business affairs, the ruling would ensure fair competition for any one developing software for the Windows operating system.
The U.S.-based consumer group Americans for Technology warned the ruling would spell trouble for other high-tech companies like Apple Inc., Intel Corp. and Google Inc., arguing the ruling would strangle software development.
"The disastrous decision ... sends a message to the world that Europe is closed to innovation," the group said in a statement. "Consumers lost today as the Commission has been given a free hand to impose unprecedented regulation over the technology industry that will result in government bureaucrats designing software and forcing Microsoft to share its intellectual property with competitors."