The screen was required as part of an antitrust agreement reached in December 2009 with the European Union that mandated Microsoft present Windows PC users with a browser choice through 2014.

"We have received indications from third parties that Microsoft has not complied with this commitment from February 2011 until today," EC Vice President Joaquin Almunia said at a news conference held in Brussels Tuesday.

"If, following our investigation, this breach is confirmed -- and Microsoft seems to acknowledge the facts here -- this could have severe consequences," Almunia said.

Microsoft admitted Tuesday that it had failed to include the browser choice screen to Windows 7 users when it delivered the operating system's Service Pack 1 update in February of last year, which the technology giant attributed to a technical error.

"We learned recently that we've missed serving the BCS software to the roughly 28 million PCs running Windows 7 SP1," Microsoft said in a statement.

Microsoft's Mea Culpa

To correct the oversight, earlier this month Microsoft began distributing the BCS software to the PCs running Windows 7 SP1 which the software giant had missed, and expects to complete the process by the end of this week.

"We understand that the Commission will review this matter and determine whether this is an appropriate step for Microsoft to take," Microsoft said. "We understand that the Commission may decide to impose other sanctions."

As compensation, Microsoft has offered to extend the termination date of the BCS compliance period by an additional fifteen months. However, Microsoft finds itself in the hot seat because it had specifically assured the European Commission last December that it was in full compliance with the 2009 BCS agreement.

"I am considering the strengthening of our monitoring for this type of decision, for example by a more frequent appointment of monitoring trustees," Almunia said. "I will also take additional steps to better monitor the implementation of commitments made legally binding in other antitrust cases."

Making Microsoft Feel the Pain

The European Commission intends to fast-track its investigation of Microsoft's breach of the BCS agreement, and if the breach is confirmed Almunia said he expects to use all of the legal instruments at his disposal at their full "capacity to deter and to punish."

"[This is], in my view, a very important case to ensure all the citizens and companies operating in the market that competition law requires a real serious enforcement," Almunia said.

Normally if the commission determines that a company has breached its legally binding commitments, the company may be fined up to 10 percent of its total annual revenue. However, one of the factors that the EC will take into consideration is Microsoft's "repetition of the infringement," Almunia said.

"I have to say that the non-compliance with an Article 9 commitment had never occurred in the past -- this is the first time," Almunia said, which suggests that the commission will impose a punishment that will be severe enough to make Microsoft feel the pain.

In addition to whatever financial penalties the EC may impose, Almunia noted that Microsoft will also potentially face an avalanche of lawsuits filed by European PC users "who consider that they were damaged by the infringement" and will be demanding financial compensation.