Anti-trust talks between the US Justice Department and Microsoft broke down on Saturday, opening the way for the US government to file suit against the computer industry leader.
"Discussions between the Justice Department, a coalition of state attorneys general and Microsoft ended today with no resolution. At this point they are not expected to resume," said US Justice Department spokeswoman, Ms Gina Talamona.
She declined to say what sticking points caused the breakdown.
The talks had been a last-ditch effort to avert a court battle over whether Microsoft was using its hugely popular Windows operating system to force computer makers to install other Microsoft software.
"We're still willing to negotiate further but cannot agree to [the government's] core demands," said Microsoft spokeswoman, Ms Erin Brewer, who termed the government's position "without merit".
Ms Brewer would not say what Microsoft offered the Justice Department, but said the government was insisting that rival Netscape's Navigator Internet browser be put in every copy of Windows.
"It is unprecedented for one vendor to be forced to [sell] another vendor's product," she said, adding "there's the expectation that they [the Justice Department] may move forward with some kind of legal action on Monday".
The government was also demanding that Microsoft give up its right to display the Windows user interface when consumers turn on a new personal computer (PC) for the first time, the software giant said in a statement.
The Justice Department, 20 states and the District of Columbia had planned to go to court last Thursday to charge Microsoft with breaking anti-monopoly laws but did not when the company reportedly came forward with concessions.
In the past, talks have been conducted personally by Microsoft chairman, Mr Bill Gates, and the Justice Department's anti-trust chief, Mr Joel Klein.
The Redmond, Washington-based company said it would ship Windows 98 to computer makers today, and the operating system will be in the stores as scheduled on June 25th.
The Justice Department could seek an injunction against those shipments, but this would be unpopular with computer manufacturers.
