EU rejects Microsoft offer

The European Commission has rejected an offer from Microsoft Corp. to settle its long-running antitrust case, said people familiar with the situation on Tuesday.

In what was described by one person close to the case as "a half-hearted" effort to meet the Commission's concerns, Microsoft Corp. offered to attach rivals' software in the form of CD-ROMs to new PCs running Windows.

The Commission, which is the European Union's (EU's) executive body, believes that by incorporating Media Player -- Microsoft's audio and video-playing software -- into the Windows operating system, the company is putting rival players such as RealNetworks Inc.'s RealOne Player at a competitive disadvantage.

Last August the Commission said that Microsoft should either unbundle Media Player and sell it as a standalone product, or it should embed a rival player inside Windows to sit alongside Microsoft's own Media Player on PC desktops.

The Commission believes that including rival software on CD-ROMs inside the box of a new PC driven by Windows won't redress the competitive balance, said the person close to the case, who requested anonymity.

Microsoft's rivals argue that record and movie companies and other firms offering content that can be played on media players will increasingly tailor their products exclusively for Microsoft's Media Player, because it will be the only software player they are sure that people will have on their PCs.

"The CD-ROMs won't be installed by a large proportion of PC users," the person familiar with the case said.

Microsoft declined to comment on the substance of the offer and its rejection.

"I can't say what's been accepted or rejected," said Horacio Guttierez, Microsoft's senior legal counsel for Europe.

Guttierez accused rivals of leaking information about Microsoft's negotiations with the Commission. He said the leak was "bits of information put out by competitors with the intention of sabotaging the (negotiating) process."

Details of the offer were reported in the Financial Times and other news organizations Tuesday.

Microsoft has argued that unbundling Media Player from Windows would prevent the operating system from working properly. It is also fears the precedent that would be set if it did agree to separate Media Player from Windows.

Future product development, such as a search engine which Microsoft plans to launch to compete with the ubiquitous Google website, count on the bundling business model Microsoft has employed with all its most successful software products including Internet Explorer, Word and Outlook Express.

One antitrust lawyer with experience in representing firms accused of antitrust abuses said that Microsoft is likely to come back with another offer. "Although the end of the case is very near now, I think it's too early to fire off your final offer," he said, on condition of anonymity.

A draft decision that brands Microsoft an abusive monopolist and proposes fining the company is being circulated internally within the Commission. The next step will be to consult with a so-called Advisory Committee comprising antitrust experts from EU member states. That meeting is expected next month.