Sources: EU rejects Microsoft offer

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

In what was described by one person close to the case as "a half-hearted" effort to meet the Commission's concerns, Microsoft 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' 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," Microsoft's senior legal counsel for Europe, Horacio Guttierez, said.

He accused rivals of leaking information about Microsoft's negotiations with the Commission.

Guttierez 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 outlets.