Microsoft's struggle to uphold an anti-trust settlement agreed with the US Government has been given a last-minute breakthrough after nine US states have declared their willingness to settle.

"The fact that so many states have joined the federal government in supporting this agreement is a very significant positive step toward resolving these issues once and for all," said chairman Bill Gates.

Talks with a further nine states are believed to be ongoing, long after a deadline set by judge Colleen Kollar-Kotelly, with at least three of these states thought to be sitting on the fence.

"We hope that the remaining states will join in this agreement, so that everyone can focus on the future and avoid the unnecessary costs and delays of further litigation," Mr Gates said.

The latest twist to this dramatic saga came just hours after the software giant's lawyer John Warden said: "Microsoft believes the settlement process has come to an end, or will come to an end [later today]".

Microsoft's apparent rejection of the judge's invitation for more time may have bought it more support for the settlement with the federal government.

Uncertain future

The judge is fully entitled to dismiss the federal settlement agreement altogether and start remedy hearings to decide on penalties against Microsoft.

If she does, the remedy hearings would start in March 2002 and could go on for a very long time.

But she could also decide to hold a public review of the revised settlement agreement that appears to have been accepted by nine states. And, say observers, she may in fact allow this settlement.

Some observers believe the judge may also allow the states that are willing to continue the fight to enter into separate litigation in parallel with such a public review.

Either way, this last minute hitch to the settlement is seen as bad news for Microsoft, especially as analysts had viewed the settlement as a very good deal with the added benefit of removing uncertainty over the issue.

The deal

Microsoft's deal with the federal government had been reached under a fast-track process set up by new trial judge Ms Kollar-Kotelly.

The software giant had been reluctant to accept any major alterations to the consent decree it had negotiated with the Department of Justice.

Late-night negotiations between representatives of the 18 state attorneys general and Microsoft through a court-appointed mediator failed to produce substantive changes.

But in the end, nine states were granted certain modifications or clarifications that convinced them it was OK.

Slap on the wrist?

Several states, led by California, Massachusetts and Connecticut, argued that the federal deal would have allowed Microsoft to proceed with its anti-competitive activities largely unchecked.

In the outcome of a three-and-a-half year court case, the company had been found guilty of abusing its dominant position in the software market.

However, the original punishment - splitting the company into two - was subsequently set aside after Microsoft appealed.

In an earlier interview with the Wall Street Journal, Massachusetts Attorney General Tom Reilly said the deal was "full of loopholes and does little more than license Microsoft to crush its competition".