WASHINGTON -- Talks between Microsoft Corp. and government lawyers failed after the company insisted on its own proposal to settle the antitrust lawsuit and not because of disputes between state and federal officials, people familiar with the negotiations said Sunday.
The talks broke down Saturday, sending the case back to U.S. District Judge Thomas Penfield Jackson in Washington, who last fall issued a finding of fact that Microsoft used its monopoly powers to thwart competition. A decision on the lawsuit is expected any day, and if Judge Jackson sides with the government, he will begin the lengthy process of determining a penalty that could include a breakup or restructuring of the company.
Sources said government lawyers no longer were insisting on a breakup, but that Microsoft refused to accept proposals submitted by the Justice Department and 19 states who sued the company.
Even before the states made new proposals Friday, "It was clear Microsoft was rejecting the government's proposal and insisting on their own approach," said an individual familiar with the government's position, who would not be quoted by name.
"That approach had a lot of loopholes and would not have been effective."
Microsoft Chairman Bill Gates contended Saturday that "it became impossible to settle because the Department of Justice and the states were not working together. Between them, they appeared to be demanding either a breakup of our company or other extreme concessions ... ."
He did not provide details of the company's offer to settle the case.
Describing the negotiations as "very complex," Iowa Attorney General Thomas Miller said "many factors" led to the breakdown, but "the position of the states was not the cause of the failure."
Microsoft officials -- including Mr. Gates -- negotiated with government attorneys just days before the Justice Department filed its original complaint in 1998.
Last November, Judge Jackson issued a finding of fact. He said Microsoft was a monopoly in the market for computer operating system software, and that the company used its power to put the squeeze on competitors' products.
He assigned a mediator -- Chief Judge Richard A. Posner of the U.S. Court of Appeals in Chicago -- to try to broker a settlement. Four months of talks produced no agreement, and Judge Jackson was expected to issue a ruling last Tuesday.
"Microsoft is sailing into dangerous and uncharted waters," said Rich Gray, an antitrust attorney in Menlo Park, Calif., who has watched the case closely. "Judge Jackson has shown that he has a pretty strong bent toward the government's case."
"I think (the judge's finding of law) will be a very favorable treatment of the government's views," Mr. Gray said.