WASHINGTON -- Sources close to the Microsoft antitrust case say it looks like the federal government is backing away from demanding the break up of the software maker.
The move represents a fundamental shift by the Justice Department, which largely decided months ago to press for a breakup while anticipating a strongly favorable ruling from U.S. District Judge Thomas Penfield Jackson in the coming weeks.
It also puts Justice's stance at odds with some state attorneys general, who believe that only the harshest punishment is appropriate.
Microsoft has indicated it will not accept any settlement that divides the company, and U.S. Assistant Attorney General Joel I. Klein believes such a punishment may not be necessary to adequately restrain what the trial judge characterized as Microsoft's monopoly power over the technology industry, said two people close to the case, speaking on condition of anonymity.
New York's attorney general, Eliot Spitzer, on Thursday praised Klein's handling of the antitrust trial but acknowledged that past cooperation between states and Justice ''doesn't mean we're going to agree on every piece, every remedy.''
Spitzer, who declined to comment on settlement talks, described a ''healthy dynamic'' among the 19 states and Justice debating punishments.
Shares of Microsoft Corp. surged 8.4 percent on reports a settlement could be near, moving up $8.62 1/2 to $111.87 1/2 on the Nasdaq Stock Market.
Antitrust experts offered several explanations why Justice now may be inclined to accept lesser punishment than a breakup as part of a settlement, even though the trial judge strongly has hinted he will rule that Microsoft violated antitrust laws.
Punishment worked out under settlement could apply immediately to Microsoft -- even before the next election -- without the uncertainty over the outcome of lengthy appeals. Government lawyers also could negotiate a punishment broadly enough they would apply to controversial practices that were not part of the current trial, such as Microsoft's dominance in Internet ''server'' software and in the market for word processors and spreadsheets.
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