Sources Say U.S., States Favor Microsoft Breakup.

The U.S. government favors breaking up Microsoft Corp. to settle the firm_s landmark antitrust case, people familiar with mediation talks taking place in Chicago said on Wednesday. The sources said that details of the remedy remain unclear, but it had emerged that the Justice Department and the 19 states involved in the case favor breaking up the company. The mediation talks began late last year under the supervision of Judge Richard Posner, chief of the United States Court of Appeals for the Seventh Circuit, who is acting in a private capacity. U.S. District Court Judge Thomas Penfield Jackson -who is trying the case in Washington - asked Posner to step in to mediate in the case after earlier attempts failed. The settlement talks began after Jackson found in early November, 1999, that Microsoft used monopoly power to harm consumers, competitors and other companies. USA Today reported earlier on Wednesday that the government favored a breakup of the company, giving specifics of the way the company would be restructured. A Justice Department spokeswoman said the USA Today report was inaccurate, without elaborating. "The story is inaccurate in several important respects," the spokeswoman said. "It does not accurately represent our views." Others familiar with the case said USA Today was correct in saying the government favored breaking up the company but incorrect in the way it characterized how the government wants the company to be restructured. At a meeting in Jackson_s chambers in Washington before the settlement talks began, Jackson expressed concern about news reports that the states and the Justice Department were unable to agree. People familiar with the talks in Chicago said there did not appear to be significant disagreement now between the states and the Justice Department in the negotiations. A spokesman for Microsoft declined to comment on the mediation process.