The European Commission (EC) is to initiate legal proceedings against Microsoft, which it accuses of discriminatory licensing and refusal to supply information on the application programming interfaces (APIs) for its Windows operating system.

The investigation follows a complaint by Sun Microsystems, alleging Microsoft’s abuse of its dominant market share in operating systems to leverage its position in server software. Sun claimed, in a series of submissions to the EC dating from 1998, that Microsoft refused to disclose information – specifically on APIs – that would enable interoperability of Windows with non-Microsoft server software. Sun further claimed that Microsoft applied a policy of discriminatory licensing, by distinguishing between its competitors according to a so-called "friend-enemy" scheme.

The EC agreed with Sun's claim, and a spokesman said: "The Commission believes that Microsoft gave information only on a partial and discriminatory basis to some of its competitors. It refused to supply interface information to competitors like Sun Microsystems."

Sun spokesman Tim Brook said his company's operating system, Solaris, is: "Ultimately, completely open. We license our source code, we give people access to the source code so they can make applications that run with it. One of the things that's important is interoperability between Windows and Sun servers, and for such interoperability, you have to know how it works."

In a statement, Microsoft denied it was freezing Sun out: "Microsoft makes its APIs broadly available and in fact encourages their broad distribution and use in the industry. Access to this information is readily available at any bookstore, on any Microsoft Web site or at any developer conference - all of which are available to Sun," the statement said.

The European Commission cannot break a company up, but could find Microsoft guilty under law, imposing financial penalties against the company.

Microsoft has two months to reply to the Commission. Normally, under antitrust investigations, there is an oral hearing, which may still take place this year, and then the Commission must come to a final decision.

German antitrust regulators are also exploring whether Microsoft has abused its market power in its quest to stamp out software piracy. "We've received a complaint from a Microsoft dealer who bought Microsoft software on the open market, and is being prevented from re-selling it," said spokesman Stefan Siebert of the Cartel Office (Kartellamt) in Bonn. The office is investigating whether Microsoft is illegally trying to dictate prices to dealers.

The investigation stems from a lawsuit brought by Microsoft against the dealer, he said, in which Microsoft claimed the dealer was selling counterfeit copies of Office 97. Siebert declined to name the dealer in question, but said that the complaint related to Microsoft's claim it can recognize phony software by an unreasonably low price.

Microsoft argued that in the case in question, 35 copies of Office 97 all had identical serial numbers. But a state court in Cologne ruled against Microsoft in May, in part because the company admitted it has no unitary, worldwide numbering system.

Microsoft is appealing the case.