Microsoft Uncut

The long-running tech soap opera that is United States v. Microsoft had slogged along for much of the summer without a major twist, so it was fine timing when the Justice Department jumped in last week and moved the plot along. The newest twist: the government announced it is abandoning its long-held goal of breaking Microsoft up into smaller companies.

As declarations not to do something go, this was a significant one. Justice took off the table the one possible remedy that Microsoft has most bitterly opposed. Just as important, it provided some tantalizing clues to the key question that has hovered over the case all year: What will the Bush Administration do with this high-profile case left over from the Clinton era?

The answer was a clear one, for the shift in strategy was actually a twofer for Microsoft. At the same time as its no-breakup announcement, the department said it would similarly not pursue the suit's "tying" claim, that Microsoft had illegally leveraged its monopoly by bundling its Internet browser in Windows. The two moves could be read as confirmation that the Bush Justice Department won't be as aggressive on antitrust matters as its Democratic predecessors.

Adding weight to that theory: the curious timing. The putative explanation for the government's thinking is that, with the case due for an in-court status hearing this week, Justice wanted to give Microsoft an idea of what would be on and off the table. But after that hearing, the case is headed into settlement talks, and it's Negotiation 101 to hold onto all your bargaining chips until you get to the table. Why abandon, in exchange for nothing at all, the one scenario Microsoft fears the most?

Microsoft's critics are grumbling that politics and payola may have played a role. They point to the company's newfound interest in campaign finance, notably the $2.5 million Microsoft contributed to President Bush and the Republicans in the 2000 election cycle. The Bush Administration took the unusual step of letting it be known that it is not second-guessing the judgment of Charles James, the recently appointed head of the Justice Department's antitrust division. (In a Senate hearing last week, Justice also disputed charges that it was politically motivated in its attempts to settle the $20 billion lawsuit against the tobacco industry, another big Republican contributor.) Microsoft spokesman Vivek Varma called the charges unfair and pointed out that competitors such as Sun Microsystems and Oracle, which have cheered Justice on, are also big political contributors.

Justice, for its part, insists it is fully committed to pursuing Microsoft, which, after all, even a Republican-dominated federal appeals court has now branded a monopolist. The department gave up on the breakup and the tying claim, it said in a statement, "to streamline the case with the goal of securing an effective remedy as quickly as possible." In fact, both of the now abandoned issues would have required the production of piles of evidence, followed by lengthy hearings. Adding credibility to Justice's explanation are the 18 state attorneys general, parties to the suit, who followed the Federal Government's lead and agreed to drop the two claims. The state A.G.s have long taken a harder anti-Microsoft line than Justice, and it's unlikely they would have signed on if they had thought doing so would significantly weaken the case.