Microsoft Uncut

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Those applications--so-called middleware--will probably be the crux of any settlement. Microsoft is planning to use its new Windows XP software to promote its Windows Media Player, Windows Messenger and MSN Internet Service. The company's critics fear that Microsoft will use its Windows monopoly to create new middleware monopolies, much as Microsoft's Internet Explorer--which was bundled in the last version of Windows--took the browser market away from onetime leader Netscape.

In July Microsoft said it would allow computer makers leeway in deciding which icons to put on the Windows desktops of PCs they sold. But when Compaq announced that it would put AOL on its PC desktops, Microsoft decided that manufacturers that added any outside icons also had to add MSN, Internet Explorer and Microsoft Media Player icons. (AOL, Netscape and TIME are all part of AOL Time Warner.)

One critical unanswered question is what last week's decision means for the launch of XP, scheduled for Oct. 25. The government, or even private competitors, could seek an injunction preventing XP from being shipped in its current form, on the grounds that it is illegally anticompetitive. Although Justice could still try to do that, the emphasis on negotiations in its statement makes such action appear unlikely. If settlement talks break down, seeking a court order halting XP--or altering it after it shipped--would remain an option.

Trying to break up Microsoft was always an uphill battle--it's an extreme remedy under antitrust law. But dividing a company has the practical advantage of being self-enforcing. "One of the pluses of a split is that it is far less intrusive in the long run than a long consent decree," says Salil Mehra, a Temple University law professor and former antitrust-division lawyer. Two newly created Baby Bills would have had an economic incentive to act competitively, meaning that the market would guard against future monopolistic activity. Conduct remedies, by contrast, require a court to monitor the offender's actions for prolonged periods to ensure that they do not lapse into illegal activity.

Which is just what Microsoft's critics are worried will happen. This case started when the government took Microsoft to court in 1997 for violating a prior consent decree. Some in the tech industry say this is what Microsoft will probably do again. "The government made a decision a year ago that it needed a structural remedy," says Edward Black, CEO of the Computer & Communications Industry Association and an outspoken Microsoft critic. "If anything, Microsoft's market dominance has only gotten worse since then."

Anxieties that Microsoft may not be in a penitent frame of mind emerged last month when Microsoft CEO Steve Ballmer insisted at a press conference in Brazil that Microsoft had plenty of competition in the software business. Seeming to ignore the findings of a federal district court and a unanimous appeals court in this case, Ballmer told reporters, "I don't know what a monopoly is until somebody tells me."

Supporters of the antitrust lawsuit are worried that last week's announcement by Justice may be only the first shoe to drop. The next, they fear, could be a fuller capitulation, with the government settling the suit on terms that will let Microsoft continue to abuse its monopoly position. But Justice insists it's just trying to balance morality and mortality. "We hope," a top official said last week, "to bring the Microsoft case to a resolution in all of our lifetimes."