Microsoft is in talks with Apple for it not to mount a challenge to Microsoft's $1.1 billion antitrust settlement in California.

Apple has condemned Microsoft's settlement as "not going far enough". Under the deal, Microsoft proposes to offer vouchers worth between $4 and $29 to Californian customers who acquired its software between February 1995 and December 15, 2001. Two-thirds of the unclaimed money will be donated to 4,700 of California's poorest schools; the remainder would revert to Microsoft.

Despite the settlement, Microsoft maintains no admission of fault or any violation of the law in the matter.

Criticising the terms of the deal, Apple said: "Under Microsoft's proposal, one third of these unclaimed funds are taken back by Microsoft and not given to our schools." An additional third can only be used to purchase Microsoft software, leaving just one third for schools to invest in purchasing produicts from other suppliers.

Apple saw its US education sales fall 15 per cent last year, and insists the deal amounts to unfair competition. Apple says the end result of the deal as it stands is that Microsoft has transformed an anti-trust settlement into a deal that is advantageous for itself, expanding its foothold in the US education market.

Apple said: "Apple strongly believes that Microsoft should make the entire pool of unclaimed voucher funds available to our schools to purchase any technology products that best meet their needs.

"Remember - this is a settlement imposed against Microsoft for breaking the law, and it should not allow them to unfairly compete in education - one of the few remaining markets where they don't have monopoly power."

Microsoft and Apple are discussing Apple's complaints, reports plaintiffs legal representative Eugene Crew in a Bloomberg report.

Crew said: "The school decides what it wants. There's no incentive one way or another" for schools to choose the software or cash. How to "ameliorate any concern Apple has depends on what Apple wants and how flexible Microsoft is," Crew said.

Microsoft calls the settlement "competitively neutral."