Source: Feds prefer Microsoft breakup to make up

A consensus appears to be emerging among government prosecutors in settlement talks with Microsoft that they propose the company be broken up, as opposed to proposing behavioral modifications, a state source confirmed.

The confirmation comes on the heels of a USA Today report Wednesday that government attorneys want to split Microsoft into two different companies, one selling the Windows operating system and another selling software applications.

Several state and federal government sources questioned that characterisation. "The story is inaccurate in several important respects, and it does not accurately represent our views," said Gina Talamona, a US Department of Justice spokeswoman.

"That report has significant deficiencies in terms of our position," said Wayne Klein, who heads the antitrust bureau in Utah, one of 19 states involved in the Microsoft antitrust case. Other government sources, however, say the report accurately reflects a growing consensus among state and federal prosecutors about options to present to Microsoft during settlement talks. Those talks have continued for over a month in Chicago with a court-appointed mediator, and there have been few leaks about the tenor of the negotiations. Microsoft officials quickly jumped on the report to point out the "irony" of a break-up proposal when one of the company's largest rivals, America Online, recently announced a proposed $350 billion merger with media conglomerate Time Warner.

"The notion of a breakup of Microsoft is an extreme and radical proposition that is not just harmful to consumers but harmful to the industry as a whole," said Jim Cullinan, a Microsoft spokesman. "It's ironic considering Monday's announcement that AOL and Time Warner are merging and will be competing directly with Microsoft." On Tuesday, Microsoft is scheduled to submit to U.S. District Court Judge Thomas Penfield Jackson its proposed findings of law in the government's antitrust case, which began in October 1998. Last November, Jackson issued his "findings of fact," in which he wrote that the company had a monopoly over Intel-based personal computer operating systems and has used its power to stifle innovation and harm rivals. He is expected to rule on whether the company violated antitrust laws by spring. Oral arguments in the case are scheduled Feb. 22. A Utah court this week accepted a settlement in an unrelated four-year-old antitrust case involving Microsoft and Caldera. While terms were not disclosed, Microsoft said it would take a charge of three cents per share on earnings in the final quarter, which could reportedly amount to more than $150 million.

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