Microsoft is reportedly in talks with the European Union to settle a dispute over the bundling of Internet Explorer with Windows. It's a last ditch effort to stave off harsh disciplinary action from regulators.

The talks are also said to involve complaints made in January 2008 that Microsoft hasn't shared enough technical details to allow rival firms to produce software compatible with Office components such as Word and Excel. (Source: bloomberg.com)

The discussion appears designed to not only find a negotiated resolution before the EU resorts to imposing penalties, but also to allow the long-running dispute to be settled before competition commissioner Neelie Kroes leaves her post later this year.

The case had been in its final stages after Microsoft pulled out of appearing at a formal hearing, citing scheduling conflicts which could have meant some EU officials would be absent. Regulators had been considering a range of possible sanctions, and Microsoft confirmed in a financial report that this could include forcing it to include rival browsers with Windows.

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Microsoft recently announced it would ship Windows 7 without any browser installed on copies aimed at the European market, but an EU spokesman said this was not an adequate solution. He noted a similar previous scheme involving Windows Media Player had simply not worked because PC manufacturers almost universally decided to add the software to computers themselves. (Source: cnet.com)

It's possible this has made officials more willing to negotiate because, if and when they issued a fine or other punishment, Microsoft could take the matter to court and argue that it had already offered a reasonable solution. Whatever the verdict in such a case, it would greatly delay the outcome, along with the payment of any fines.

Bloomberg, which first reported on the talks, says it has four inside sources confirming the story. Neither Microsoft nor the EU has publicly acknowledged that any talks are taking place.