Under a decision expected next month the commission could let the company decide itself which intellectual property rights it surrenders, avoiding legal appeals which would likely follow a firmer Brussels slap for the group.

"The decision will be at the end of March. We will have soft remedies with self-regulation so that the company itself breaks its own intellectual property rights," said one of the sources.

Microsoft, which has largely settled its anti-trust problems in the United States, is accused in Europe of trying to squelch rival products to its Windows Media Player, such as RealPlayer and Apple QuickTime.

Microsoft has also been accused of trying to squeeze out other firms in the market for "low-end servers" -- computers that provide e-mail and other services to multiple users.

The suggestion of a compromise deal comes after EU internal market commissioner Frits Bolkestein intervened in the case because he believes the EU should not take away intellectual property rights from companies.

The source added that the commission will inform Microsoft of its final conclusions of its antitrust investigation, "lay the scalpel down on the table and instruct the company to cut away at its intellectual property rights".

After a hearing last November, Microsoft claimed its intellectual property rights could be patent-protected rather than simply protected by copyright, fuelling speculation that the commission would have to make a compromise deal.

Competition commissioner Mario Monti has, until Bolkestein's intervention, been sticking to his tough line against the company but is now said to agree that the softer approach is the only way forward, sources said.

During Monti's term of office, the European Court of First Instance has overturned several decisions of the competition department. Reaching such a settlement would make it impossible for Microsoft to launch a lengthy legal battle.

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