Microsoft flouted the European Union antitrust law and must face sanctions, according to the draft ruling.
The European Commission draft requires Microsoft to share proprietary information with rival server makers and to provide computer manufacturers with a second version of Windows stripped of built-in audiovisual software, sources familiar with the case say.
EU regulators have found that the world's biggest software company has refused to halt its violations. Since continuing settlement talks have produced no deal, the ruling sets out detailed plans to impose changes.
The advisory panel of national antitrust experts is also expected to endorse a fine of hundreds of millions of euros, but not until a second and final meeting on 22 March.
The Commission has set 24 March for the decision, according to a draft agenda, the sources say. Only once it is endorsed, will EU Competition Commissioner Mario Monti announce one of the most important rulings of his five-year tenure.
"The key to the current decision is to establish principles and not simply solutions to individual issues," said David Wood, a competition lawyer for Howrey Simon in Brussels.
"The key to the current decision is to establish principles and not simply solutions to individual issues"
Wood noted that EU regulators had dealt with a series of Microsoft cases during the 1990s, reaching compromises with the software giant in 1994 and 1997, but took no formal decisions.
'Need for change'
"How many more Microsofts will there be?" he asked, saying the Commission has recognised a need to change the way the US giant does business in Europe. "That's the focus of the case."
The Commission intends to give Microsoft a deadline to get its house in order or face additional action, the sources said.
The Commission has worked and re-worked its draft ruling to stand up to scrutiny by EU courts in Luxembourg, to which Microsoft is certain to appeal in the case of any adverse decision.
The company's first move would be to ask a court to suspend the Commission ruling until the case is completed, which could take three to four years.
The EU Court of First Instance has the option of granting a suspension, denying it, or asking the parties' consent to put the case on a one-year fast track and, if both sides agree, freeze remedies in the meantime.
Microsoft acknowledges that Windows, which runs on nearly all personal computers, is dominant. The Commission will find the company abused that dominance in two areas.
Two areas of abuse
First, Microsoft tried to hurt rival makers of audiovisual software by bundling its own Windows Media Player with its ubiquitous operating system, the sources say.
Microsft is said to hurt rivals by
bundling its own software in its OS
The advisory committee is expected to endorse a proposal requiring Microsoft to ship two versions of Windows to computer makers, which account for most sales of the operating system, for installation in computers sold in Europe, the sources say.
One version would have Microsoft Windows Media Player tied in as it is now. The other would have it stripped out.
The aim is to free computer makers to sell Windows bundled with rival audiovisual software such as RealNetworks RealPlayer or Apple's Quicktime, the sources say.
Microsoft says Windows Media Player is an inherent part of the operating system and cannot be stripped out. RealNetworks used demonstrations at an EU hearing to argue it can be.
Second, the Commission will rule that Microsoft has given rival makers of low-level servers too little information to compete with the company's products.
As a result, Microsoft's low-level servers, which perform tasks such as printing and file handling, work better with Windows.
The advisory committee is expected to approve a remedy requiring the US firm to share more of its protocols with rivals, charging a reasonable royalty.
It will be left to Microsoft to work out the precise solution, with close oversight by the Commission, the sources said.
Finally, the advisory group is expected to endorse a formal Commission finding that Microsoft broke the law, which would set a precedent on which Brussels can rely in the future.