Microsoft Corporation announced on Saturday that talks with the U.S. Department of Justice and several U.S. states broke off because the government wouldn't turn back from three key demands.

"Microsoft would have done a great number of things to avoid a lawsuit." said Microsoft chairman and CEO Bill Gates this weekend. "The lawsuit will be very time-consuming, it will use up a lot of resources, and that's why we worked so hard over the past few days and we felt it was likely a compromise would be reached. but we were surprised by the requirements that made that impossible."

And what requirements did the government have? Gates said the government was being unreasonable.

"The government had a huge number of non-negotiable demands. Among those, they wanted us to give up the right to ever display the Windows user interface, to make it so a user would never see Windows at all. They also asked us to display any way of the user getting at the Internet Explorer functionality that's built into the system. And they also asked us to ship competitor's products with our products so that Netscape would be able to ship whatever they wanted and we'd have to force everyone to install that with every copy of Windows," Gates continued.

In the end, Microsoft was unable to meet these "non-negotiable" demands and it now plans to continue with the release of Windows 98 as scheduled.

"Microsoft held the shipment of Windows 98 for a few days to allow the talks to continue, but now that the government's decided to sue us, we'll be making Windows 98 available to our partners and it will be on schedule for the June 25th availability," Gates said.

Interestingly, Gates was offering the government "significant concessions" though these haven't been made public yet. Sources say Microsoft was prepared to allow hardware manufacturers to modify the Windows 98 startup screen so that consumers could see a Dell, Compaq, or Gateway welcome screen instead of the Windows 98 one that now appears. They withdrew this and other unknown concessions on Saturday when the talks broke down, however.

As for what the future holds, it's hard to say: numerous states, including California, Connecticut, Florida, Illinois, Iowa, Kansas, Kentucky, Louisiana, Maryland, Massachusetts, Michigan, Minnesota, New Mexico, New York, North Carolina, Ohio, South Carolina, Utah, West Virginia and Wisconsin, as well as the District of Columbia, are all planning antitrust lawsuits against Microsoft and the DOJ, of course, is expected to launch its own suits as well. The states are pursuing Microsoft because of a variety of alleged anti-trust violations that aren't specific to Windows 98.

The coming week promises to be an interesting one