BRUSSELS -- Microsoft Corp.'s stinging defeat in a European courtroom rewrites the rules for competition in Europe, promising tighter scrutiny for dominant companies including several American giants.

The Luxembourg-based Court of First Instance said the European Commission acted properly in 2004 when it found that Microsoft had abused its near-monopoly position. The commission, taking a significantly tougher line than U.S. antitrust authorities have done recently, said Microsoft improperly bundled a media player with its...