WASHINGTON -- Microsoft Corp. and the Justice Department reached a tentative agreement Wednesday to settle the historic antitrust case against the software giant, and state attorneys general were reviewing terms of the deal, according to people familiar with the talks.
Terms of the prospective settlement were closely guarded, and people close to the negotiations cautioned that precise language was still being worked out even between Microsoft and the Justice Department.
The attorneys generals from the states that sued Microsoft for antitrust violations were weighing whether to sign onto the deal.
Charles James, assistant U.S. attorney for antitrust, disclosed the agreement to the attorneys general on Wednesday and said Microsoft also would accept the terms, the sources said, speaking only on condition of anonymity.
The computer industry has eagerly been monitoring the talks, looking for a possible settlement and hoping it would combine with the release of Microsoft's new Windows XP operating system to invigorate the lagging industry that has helped drag down the stock market.
The new trial judge, U.S. District Judge Colleen Kollar-Kotelly has set a deadline of Friday to reach a settlement. The sides -- including state prosecutors from Iowa, Connecticut, New York and Wisconsin -- met late into the night Wednesday with mediator Eric Green in Washington.
The considerations in the coming days by state attorneys general and their top lawyers are important. The case was nearly settled during previous negotiations under U.S. Circuit Court Judge Richard Posner, who hinted afterward that states had spoiled an agreement by seeking tough penalties that Microsoft rejected.
The states have in the past suggested they would press forward against Microsoft if the U.S. government settles the case in ways unacceptable to them.
A spokeswoman for the Justice Department, Mindy Tucker, declined to comment on the talks.
Microsoft Chairman Bill Gates has hinted in recent days of successful negotiations, saying on ''The Charlie Rose Show'' last week that he was ''fairly optimistic'' an agreement would be reached. Microsoft spokesman Vivek Varma said Wednesday he would not discuss ''any aspect of the confidential discussions'' but added that, ''We believe a settlement would be good for consumers and the overall economy.''
An industry trade group that has been critical of Microsoft's business practices braced for the deal, issuing a statement late Wednesday accusing the Bush administration of ''selling out'' by seeking weak penalties.
The Washington-based Computer and Communications Industry Association charged the administration wasn't pushing for tough enough penalties such as requiring Microsoft to disclose its source code blueprints for its flagship Windows operating system.
''The Justice Department isn't settling this case, it is selling out consumers, competition, and all those who want a vibrant, innovative high tech industry contributing strength to our economy,'' the group's president, Ed Black, said in a statement.
Microsoft and Justice officials would not immediately comment on the group's charges, but a pro-Microsoft trade group, the Washington-based Association for Competitive Technology, said only Microsoft's competitors don't want to see a settlement. The head of the group, Jonathan Zuck, said a settlement is desirable ''particularly in this time of economic downturn and national crisis.''
Lawyers and executives for Microsoft have previously bristled over suggestions that any settlement would require them to disclose the ''source code'' blueprints for the company's monopoly Windows operating system, the underpinnings of its multibillion-dollar business.
Microsoft officials also have warned they wouldn't accept any broad prohibitions against bundling new features into Windows.
The prospective agreement is a five-year consent decree between the government and Microsoft, with a possible two-year extension if the company violates its terms, a person close to the talks said. A three-person advisory committee would oversee compliance with the agreement. Those details were first reported by The New York Times.
James, the antitrust chief, recently announced the government won't seek to break up Microsoft and will not pursue that part of the original lawsuit that was thrown into question by a federal appeals court over the summer.
He also decided not to try to block Microsoft from releasing Windows XP, its newest version of its operating system.
The original judge in the case, Thomas Penfield Jackson, ordered the breakup of the software giant into two companies after concluding Microsoft violated antitrust laws by illegally stifling its competitors.
But a federal appeals court reversed that penalty this summer, and appointed a new judge to determine a new penalty in one of the most significant monopoly cases in American history.
The new judge strongly urged both sides to settle the case last month and gave them a deadline of Friday.
One person who had been briefed on some of the draft settlement proposals being discussed in recent days, who spoke on condition of anonymity, said the ideas being discussed included:
--Letting Microsoft add new features into its flagship Windows software, but requiring the company also to offer a version that doesn't include those additions.
--Banning restrictive contracts that would force computer makers to buy versions of Windows with new features, but allowing financial incentives such as discounts to make those versions more enticing.
--Forcing Microsoft to reveal parts of its Windows blueprints relating to its Internet browser software, but not the blueprints to Windows.
Shares of Microsoft were down 73 cents to close at $58.15 in trading on the Nasdaq Stock Market Wednesday. In the past year, shares of Microsoft have as high as $76.15 on June 28, and as low as $40.25 on Dec. 21, 2000.
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