Microsoft's settlement proposal to end its federal antitrust case is insufficient, and US government prosecutors might declare an impasse in negotiations as soon as tomorrow, the Los Angeles Times reported today.

In a departure from several days worth of published reports by major US newspapers and wire services, the LA Times report said that its anonymous sources were "close" to the US government. Reports elsewhere have not identified which side the anonymous sources were on.

The settlement proposal from Microsoft was termed "detailed" by the newspaper. The proposal was reportedly sent to the US Department of Justice (DOJ), 19 US state attorneys general and the District of Columbia. The DOJ and the states have joined forces in the federal lawsuit, alleging the software maker has violated federal antitrust laws by engaging in anti-competitive business practices.

Settlement falls short Central to the case is Microsoft's alleged "tying" of its Internet Explorer Web browser to its Windows operating system. Government prosecutors argue that Microsoft used its monopoly power in the operating systems market in an attempt to control the Internet browser market. The settlement proposal reportedly does not acknowledge antitrust violations, nor does it allow for restrictions in how Microsoft develops and markets Windows in future, the Times reported.

However, the proposal is said to include an offer by Microsoft to untie the browser from some versions of Windows, according to various published reports over the weekend. The company also said it will alter its software licensing agreements, share technical information and allow PC vendors to customize Windows, the Times reported.

District Court Judge Thomas Penfield Jackson reportedly told both sides last week that he will issue his conclusions of law Tuesday, and so urged them to work toward a settlement before then. In November of last year, Jackson ruled in his findings of fact that Microsoft is a monopoly and has used its operating system dominance to squelch competition in the browser market. Jackson will rule in the conclusions of law whether or not he thinks Microsoft used its monopoly power to violate federal antitrust laws.

Trouble ahead Jackson's findings of fact were so strongly supportive of government arguments in the case that many observers believe that his conclusions of law will find in favour of the government as well.

The flurry of published reports citing anonymous sources picked up late last week when US government prosecutors were said to have backed off their position that Microsoft should be broken up into separate companies - a move that got mediation discussions going again. Microsoft officials vehemently oppose breaking up the company.

Jackson has appointed Richard Posner, chief judge in the 7th Circuit Court of Appeals in Chicago, to serve as mediator in the case. The two sides reportedly have not met during the mediation process. Instead, Posner has handled conveying back and forth via e-mail and fax the latest proposals from each side.

Published reports over the weekend said that no new negotiation sessions had been set, though anonymous sources told the Associated Press that talks could resume.