Europe’s second highest court has rejected Cisco’s challenge of Microsoft’s Skype acquisition. The European Commission approved the $8.5 billion deal in 2011, but Cisco sought to strip the EU approval almost a year later. Cisco argued at a hearing earlier this year that Microsoft’s acquisition of Skype created a monopoly, and that conditions should have been placed on the deal. Microsoft has since integrated its Lync communications service into the Skype platform to produce a proprietary system.

Reuters reports that the European General Court said Cisco failed to demonstrate how Microsoft’s acquisition of Skype would harm competition. "Microsoft's acquisition of Skype is compatible with the internal market," said the judges. "The merger does not restrict competition either on the consumer video communications market or on the business video communications market." Cisco can now appeal to the EU Court of Justice if the company wishes to challenge the takeover further.

An Xbox-powered boardroom?

Cisco’s concern over Microsoft’s Skype acquisition is obvious. The company sells a number of costly hardware video-conferencing solutions to businesses, and Microsoft’s Lync alternative can transform ordinary PCs with a webcam into a software-powered video conferencing system. Cisco is promoting an open-standards approach to increase interoperability between rival services, and it's clearly concerned that Microsoft may squeeze it out of the market with Skype. Microsoft is also an increasing threat in boardrooms with the potential for the company to transform its Xbox One into a video-conferencing system, thanks to its bundled 1080p Kinect camera. Microsoft’s devices chief, Julie Larson-Green, hinted at that possibility recently. "You can also video conference with your Xbox, so maybe they'll be showing up in the boardroom, as well," she said.

Update: Cisco has supplied the following statement to The Verge regarding the EU court decision:

Cisco is disappointed that the Court did not require the Commission to revisit interoperability requirements for the Microsoft / Skype merger, however we remain committed to interoperability and will continue to work to make video calling as easy as making a phone call or sending an email. We are hopeful that in the interest of customers and consumers, Microsoft and others in the industry will join us and continue to rally around this ideal and work together to achieve an open, interoperable video community.