Talks by EU, software giant fail

No antitrust pact opens way to limits on Windows

Heavy fine likely for Microsoft

Ruling may set precedent for future cases in Europe


BRUSSELS, Belgium - Microsoft Corp. and European Union regulators have failed in last-ditch talks to agree on an antitrust settlement, opening the way for restrictions on the software giant's Windows operating system.

"We made substantial progress toward resolving the problems that had arisen in the past, but we were unable to agree on commitments for future conduct," the European Union competition commissioner, Mario Monti, said yesterday. "It was impossible to achieve a satisfactory result in terms of setting a precedent."

The ruling could set a legal precedent that might be used against Microsoft in future European cases.

Monti said he also would propose a fine - expected to reach hundreds of millions of dollars - when his draft decision goes to the full European Commission, the European Union's executive branch, on Wednesday.

The ruling won unanimous backing last week from the 15 governments that make up the union, so it is expected to pass easily.

Monti held a brief meeting Wednesday morning with Steven A. Ballmer, Microsoft's chief executive, after spending four hours with him and Microsoft's chief lawyer, Bradford L. Smith, on Tuesday, a person close to the talks said.

Another face-to-face meeting between Monti and Ballmer was "unlikely," this person added.

If no settlement is reached by next Wednesday, the European Commission is expected to adopt a ruling that finds Microsoft to be an abusive monopolist.

The commission's order could force Microsoft to offer two versions of its Windows operating system in Europe - one with Microsoft's music and video software, and one with Media Player stripped out of the operating system and sold separately.

Windows code

The ruling also is expected to order Microsoft to license more secret Windows code to allow rivals to build software that works smoothly with it, and to fine Microsoft 100 million euros ($122 million) to 1 billion euros ($1.22 billion).

To avert such a ruling, Monti is asking Microsoft to agree not to distort competition by bundling peripheral software programs in Windows in the future.

"Such a legal undertaking could simulate the effect of a precedent-setting legal ruling," said a Brussels-based lawyer close to the talks, adding that after making such a commitment in writing, Microsoft could be challenged on its motives for bundling other software into Windows.

In addition to Media Player, Microsoft also bundles its Instant Messenger Service and Outlook e-mail program into Windows. And it is planning to bundle a search engine, which would compete with Google, this year.

The commission declined to comment on what Monti is seeking from a settlement.

Bundling question

The bundling question is a major sticking point in the settlement talks.

Microsoft contends that adding functions like Media Player to Windows is what computer users want, so the company has based much of its business model around developing Windows in this way. It also has argued that to remove Media Player would harm Windows.

The commission, along with rival software makers, argues that bundling programs like Media Player into Windows is anticompetitive because it puts rival music and video players, such as RealOne Player by RealNetworks and Quicktime by Apple, at a disadvantage.

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