By Paul Geitner
The Associated Press

BRUSSELS, Belgium - The European Union announced its intention Thursday to sanction Microsoft Corp. after the software giant balked at demands that could have prevented it from adding new features to future versions of Windows - a restriction it avoided in the landmark U.S. antitrust case.

Frenzied settlement talks that accelerated this week with the arrival of Microsoft chief executive Steve Ballmer in Brussels collapsed over the EU's insistence on a broad deal in exchange for allowing Microsoft to avoid being found guilty of monopolistic behavior.

EU Competition Commissioner Mario Monti said he would now proceed with a precedent-setting ruling against the world's largest software company Wednesday. The EU also plans to hit Microsoft with a fine expected to reach hundreds of millions of dollars.

"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," Monti said. "It was impossible to achieve a satisfactory result in terms of setting a precedent."

Hours later, Ballmer said he thought the issues in the current case - involving digital media players and the server software market - had been resolved.

"But we were unable to agree on principles for new issues that could arise in the future," he said in a statement.

Microsoft lawyers said the company would appeal any negative decision to European courts.

An EU order could force Microsoft to make costly changes in its software - potentially on a global scale - in a matter of months unless it wins a suspension from the court pending appeal, which can take years.

Monti will present the proposed fine Monday to an advisory committee of national regulators before going to the EU's executive branch Wednesday for a final decision.

After winning unanimous backing from the 15 EU governments last week, the ruling is expected to pass easily.

Microsoft is accused of unfairly grabbing market share from rival companies by bundling its own Media Player with Windows - the operating system in almost every personal computer worldwide.

Microsoft contends that benefits consumers, but rivals claim it is unfair competition that stifles innovation and aims to drive them out of business.