European Union rundown

Microsoft and the European Union announced earlier today that their settlement negotiations had broken down. The turn of events sets the stage for a ruling against the company next week. Here's an AP story summarizing the situation. Also see my story in Friday morning's paper.

Microsoft and the European Commission were able to agree in principle on a plan to resolve the current antitrust complaints against the company, but the talks broke down over the commission's desire for a broader agreement restricting the incorporation of extra programs and features into Windows in the future.

Here's the official statement from EU antitrust commissioner Mario Monti. Get the official word from Microsoft in this press release.

Brad Smith, Microsoft's general counsel, has been in Brussels negotiating with EU officials, along with Microsoft CEO Steve Ballmer. I was able to speak with Smith on the phone for tomorrow's story as he travelled back to Seattle this afternoon. Here are some excerpts from what he said:

• On the negotiations: "Basically we reached a point this morning where we had to agree to disagree. That sometimes happens in life. It’s not the end of the world. We’ll go forward. We can manage these issues and I suspect there will be a time in the future when we’ll have the opportunity to build on the personal relationships that we forged and with the help of the courts we'll find a way to work this out."

• On why the negotiations failed: "We were able to reach agreement on all of the issues in this case but we were not able to agree on a single formula that would address all possible future cases or other types of situations. And since we were not able to reach agreement on that, the commission decided not to settle and to move forward with its negative decision."

• On the tone of the negotiations: "We worked incredibly hard to reach a settlement in this case in part because we’ve been so focused on strengthening our relationship with governments. I’ve spent more days in Brussels in the last two months than I’ve spent in Redmond. ... We’ve had virtually non-stop, around-the-clock negotiations going for quite some time."

• On Microsoft's outlook: "I do think there's an important silver lining in the cloud. First, clarity from courts will ultimately benefit everybody, and I think we'll likely emerge at the end of this process with an outcome that will be quite a constructive one for us and for the industry. Second, we really have forged a very constructive relationship with the people at the commission."

• On the prospects for a future settlement: "To some degree it wouldn't surprise me if this case unfolds in one specific way like the case in the United States. We tried hard to settle the case with the Department of Justice and the states. We were not able to do that. Once the case went to the Court of Appeals, the Court of Appeals issued a decision and the case settled four months later. We may well see this case go to the courts, and once the court rules and we get some clarity it may well be possible to sit down and negotiate a settlement then. This is definitely not the last opportunity that we’re likely to have to sit down and talk in a constructive way."