Talks between Microsoft Corp. and the federal government broke down Saturday, setting the stage for a major antitrust lawsuit to be filed Monday against the company.
Several states also will file suit, said a representative of state attorneys general, who also were involved in the negotiations.
Microsoft said the suits would “set a harmful precedent in which government intervention into a healthy, competitive and innovative industry adversely impacts consumers.”
The Justice Department was to file its lawsuit Thursday, arguing that Microsoft uses the dominance of its Windows 98 operating system to illegally direct consumers to other Microsoft products such as its World Wide Web browser, Internet Explorer.
But in a last-ditch effort to stave off a long, costly court battle, Microsoft approached the Justice Department and offered what some have called “major concessions.”
Microsoft agreed to rewrite its contract with Internet content providers, Internet service providers and on-line services–contracts the government considered too restrictive.
In exchange for the government’s postponing the case and reopening talks, Microsoft agreed to delay shipping Windows 98 to computer-makers until Monday.
Now, those negotiations are off. In a brief statement Saturday, the Justice Department said the talks “ended today without resolution. At this point, they are not expected to resume.”
“This impasse is disappointing,” Microsoft Chairman Bill Gates said. “We worked hard to try and resolve this, but the government demands went too far.”
Microsoft is expected to ship Windows 98 to manufacturers Monday–consumers will get it June 25–and the Justice Department will almost certainly file its suit Monday.
Ultimately, the two sides were simply too far apart this weekend.
A major government demand, according to Microsoft spokesman Jim Cullinan, was that the company ship the Web browser of its rival, Netscape Communications Corp., along with Windows 98.
Microsoft officials considered that preposterous.
“It’s like asking Coke to ship three cans of Pepsi with every 12-pack,” Cullinan said.
Another government proposal, according to sources close to the negotiations, would have allowed computer-makers to open up to bidding the first screen appearing after a computer boots up. Microsoft, though, would not have been allowed to bid.
“We are willing to continue to negotiate, but we are certainly not going to agree to the government’s unreasonable demands,” Cullinan said.
Talks opened Friday at the Justice Department and continued Saturday in the offices of Microsoft’s Washington law firm, Sullivan & Cromwell.
Two senior government officials involved with the negotiations said Microsoft, on orders from Gates, had retracted some of the concessions it had put forward the day before.
“They said that, on reflection, Bill Gates had expressed an unwillingness to do what they had said they were willing to do before,” said one of the officials.
If the U.S. lawsuit goes forward this week, it could mean one of the longest and most influential antitrust battles in years.
It could set important precedents for how decades-old antitrust law will be applied in the era of software, the Internet and corporate computer networks.
It also would pit government regulators against one of the world’s most admired entrepreneurs, Gates.
Federal and state officials have tried to depict Microsoft as a bully, forcing companies that want to use Windows 98 to favor other Microsoft products as well.
