The European Commission has shot down Microsoft's proposal for opening up its workgroup server software protocols after receiving complaints over the licensing terms.

The Commission sent a letter to the software maker on Thursday night rejecting its plan to charge as much as $600 (£314) per server to license protocols that would allow competitors to build server programs that work well with PCs running Windows, according to a source close to the case.

The regulator's rejection of the proposal was in part prompted by complaints from the Free Software Foundation Europe (FSF Europe), which sent a letter to the Commission outlining its concerns with the licensing terms.

FSF Europe, which has been admitted as an official intervenor in the antitrust case, argued that the per-server licensing proposal went against the idea that the protocols could be used to develop free software because there is no way of knowing how many servers will be using it.

"Microsoft either doesn't understand or doesn't want to understand the idea of free software," said FSF Europe spokesman Joachim Jakobs. He noted that free software is openly copied and therefore the extent of its use cannot be tracked.

Another issue raised by the FSF Europe was that developers using the server software protocols would run into copyright concerns with Microsoft if they attempted to use the protocols to publish free software programs, according to Jakobs. Because of copyright conflicts, free software developers "cannot work at all in this field," he added.

Microsoft said in a statement Friday that it is grateful to receive the results of the Commission's market testing and that it will enable it to respond promptly and in an appropriate way.

The issues are complex and nuanced and it is trying to strike the appropriate balance between the need to preserve the private interests of Microsoft with the public interests of Commission, it said.

Microsoft submitted its server protocol licensing proposal to the Commission in May, in response to sanctions imposed on it by the regulator. The Commission decided in March of last year that Microsoft had abused its dominance in the desktop software market to gain an edge in related markets. In addition to imposing a fine of €497 million (US$662 million), it ordered to the company to open up interfaces for its workgroup server software and supply a version of Windows in Europe without its Windows Media Player (WMP) included.

Microsoft has appealed the ruling, but its request to suspend the interim measures was rejected. So far its attempts to comply with the sanctions have been met with concern by the Commission.

The Commission also rejected the company's initial proposal to release the WMP-free version of Windows XP under the name "Reduced Media Edition."