Microsoft is not accustomed to being a loser. But the software market leader has been cast in this uncomfortable role by a federal judge in California who this week issued a damning ruling against the company in the first round of its technology licensing dispute with rival Sun Microsystems.

The preliminary ruling forces Microsoft to modify Windows 98, its flagship operating system software, as well as its Internet browser program and certain software development tools, within 90 days or stop distributing the products.

Although not directly related to the landmark Microsoft antitrust trial under way in Washington, the California court's ruling bolsters government charges that Microsoft has engaged in a "pattern of anti-competitive behaviour" in efforts to protect its Windows monopoly.

In his 30-page ruling, US District Judge Ronald Whyte found that Sun was "likely to prevail" in its lawsuit against Microsoft. He also wrote that several Microsoft actions constituted unfair business practices.

Both sides were surprised by the stern ruling. Sun had hoped the judge would issue an injunction, but had been expecting a less clear cut victory in the complex case.

Senior Microsoft executives sounded shocked by the ruling. They expressed disappointment, while attempting to play down the significance of the judge's decision.

This was not a stinging defeat for Microsoft, Mr Paul Maritz, Microsoft group vice-president, insisted.

The ruling would not affect Microsoft's financial performance and would have no direct impact on customers, he maintained.

However, Microsoft was examining its legal options - which might include an appeal - and in the meantime was preparing to comply with the court order, he said.

Yet an even greater concern for Microsoft must be the potential impact of the California ruling on its antitrust defence.

The preliminary ruling comes as Microsoft is attempting to counter the evidence of government witnesses, several of whom have alleged that Microsoft abused its market power to restrain competition. The Justice Department may now choose to enter Judge Whyte's decision into evidence in the antitrust case and the issues addressed in the Sun Microsystems case are likely to be given greater prominence in the Washington trial.