A proposal delivered by Microsoft Corp to Iowa attorney general Tom Miller has been deemed unacceptable by the attorneys general of other states suing the company for antitrust violations. It was a minimalist opening offer, said California attorney general Bill Lockyer. It was far from what anyone in our group would expect to be adequate.

Michigan attorney general, Jennifer Granholm said that she and her colleagues want something with teeth, something that works, unlike the previous agreement. On the other hand, she said the attorneys general don’t want to disembowel the company in the light of its contributions to the computer industry and the economy.

The state attorneys general involved in the case will be briefed on the proposal in a closed session at a meeting held in Washington DC today, Thursday. Rumors abounded that Microsoft had also made approaches to the Department of Justice, but assistant attorney general Joel Klein said on Tuesday that no such negotiations were under way.

Microsoft chair and CEO Bill Gates has, however, been making conciliatory noises. There are ongoing discussions and I won’t speculate as to the probabilities, but I hope it does get settled, he told interviewer Sir David Frost at the Scroders/Variety media investor conference in New York.

Gates said that any settlement would have to respect Microsoft’s ability to innovate Windows, the ability to maintain the integrity of Windows as a fully designed product. As long as we can keep those intact it would be great to settle the thing.