Microsoft dropped its prohibition on running the most popular versions of Windows Vista in virtual machines because of a complaint filed with antitrust regulators, court documents show.

According to a status report filed with US District Court Judge Colleen Kollar-Kotelly, Microsoft changed the end-user licensing agreements (EULA) of Vista Home Basic and Vista Home Premium under pressure from Phoenix Technologies.

Phoenix, best known for the BIOS, or firmware, that it sells to PC makers, had filed a complaint with regulators sometime after early November 2007, arguing that Microsoft should open the less-expensive versions of Vista to virtualisation.

"The complaint concerned a restriction in Microsoft's Vista EULA, which purported, for less expensive versions of Vista (Home Basic and Home Premium), to bar the user from running those versions of Windows on virtualisation software," said the joint status report submitted to Kollar-Kotelly, the federal judge who oversees the settlement agreement struck between antitrust officials and Microsoft in 2002.

"Phoenix, which had recently announced a virtualisation product, complained that Microsoft's EULA restrictions would deter OEMs from including its product on new PCs, and also deter consumers from using virtualisation software made by Phoenix and other companies," the report continued.

Although the report didn't name the Phoenix's virtualisation product, it was referring to HyperSpace, a technology the company unveiled in November 2007. HyperSpace embeds a Linux-based hypervisor in the computer's BIOS that allows the computer to run open-source software without booting Windows.

At the time, Phoenix touted HyperSpace as a platform for PC makers, who could use it to add instant-on applications such as security and maintenance tools, e-mail clients or even Web browsers to their wares. Users would be able to fire up those applications without taking the time, and on a laptop, the battery drain, required to boot Windows.

A little more than two months after Phoenix filed its complaint, Microsoft gave in. "After discussion with the Plaintiff States and the TC [Technical Committee, the three-person group that assists in monitoring Microsoft's compliance], Microsoft agreed to remove the EULA restrictions, and has done so," the status report said.

In fact, Microsoft announced the virtualisation changes to Vista Home Basic and Vista Home Premium on 22 January, several weeks before the release of the report. At the time, company representatives were not made available to explain why Microsoft had added the two editions to the allowed virtualisation list.

In a post to the Vista team blog that day, Shanen Boettcher, general manager of Windows product management, had mentioned the new rules only in passing, saying, "By modifying virtualisation in Windows Vista Home Basic, we are extending virtualisation rights to allow virtualisation throughout all versions of Windows Vista."

Microsoft had come close to relaxing virtualisation rights for the two Vista SKUs back in June 2007, but decided against the move at the last minute. When asked then why it backed away from the decision, the company issued a statement through its public relations company. "Microsoft has reassessed the Windows virtualisation policy and decided that we will maintain the original policy announced last fall," the statement read.

In January 2008, Microsoft needed only to modify the EULA to implement the changes; there had never been a technical barrier to virtualising either version of Windows.

Neither Phoenix Technologies or Microsoft immediately replied to queries about the complaint and the changes to virtualisation in Vista.