The fundamental issue in the Microsoft antitrust case was about preventing Microsoft from bundling into Windows new features that might be standalone applications. The proposed settlement does not address this issue at all. That means Microsoft is free to distribute any program in Windows it wants — something the company demanded as part of its freedom to innovate.

The problem is that Windows has become a market requirement for any desktop computer and is now the most powerful distribution mechanism in the information industry. As many as 150 million Windows-based PCs will be shipped this year. Microsoft is the only company that can singlehandedly decide what features it will and won't bundle and support in that software. The fact that Microsoft had bundled a browser into Windows, which essentially pushed Netscape out of that business and gave Microsoft strong sway in Internet-related products and services, was the touchstone for the antitrust case, something seemingly forgotten in the settlement.

The settlement does address two important secondary issues — how Microsoft interacts with its customers and what information it supplies to the industry. Microsoft repeatedly has been accused of using the price of Windows as a bargaining tool for controlling what software computer makers put in their PCs. Those who used all the strategic Microsoft products got the best discounts on Windows through a complex series of specific marketing agreements. Those who used competing products did not get as many discounts and in some cases were alleged to have been threatened with having their license to Windows revoked completely.

Plenty of leeway

The cost of Windows is one of the single largest costs of building a PC, and is thus closely tied to whether a company can be profitable or not, especially in the desktop PC business with its single-digit profit margins. The settlement says Microsoft must publish a fixed schedule for the royalties it charges OEMs for Windows. However the settlement also allows Microsoft to grant computer makers special considerations for any support it gets from them in developing, marketing or distributing its products. This essentially negates any move to established fixed prices for Windows and leaves Microsoft plenty of leeway for how it works with OEMs.

The settlement also says Microsoft cannot do anything to retaliate against computer makers who use non-Microsoft products in the PCs they ship. In fact, the settlement says computer makers can put links to any products and services they want on the opening screens users see when they boot up their systems. In the past, Microsoft controlled that space. However, it could be argued that there are few commercially viable mainstream operating systems or applications programs at this juncture that OEMs would have available to them. And even if there were good alternative applications, under the settlement Microsoft could decide to offer them in Windows itself as it has the browser and the Windows Media Player.

The settlement also says Microsoft must make available the application programming interfaces for Windows and any key communications protocols that link Windows desktop and server products so that other companies can make products that are fully compatible with Windows. However, the settlement includes significant language that says anything broadly related to security is not included in that agreement. And the settlement also gives Microsoft broad rights to determine whether a competing company has a viable commercial need to see those APIs and protocols, so the information will not be generally available to the industry.

Finally, the settlement would be administered by three people working full-time at Microsoft's headquarters. They are to act as reporters, examining Microsoft's practices and accounts, and providing information to the government. They will not have any power to take any enforcement actions themselves. In addition, Microsoft will pick one of the three administrators, the government will pick another and the third will be picked together by the first two administrators.

It would be unrealistic to expect such an agreement would lead to any substantive changes in what Microsoft bundles into its operating system, how it acts with its key customers and what information it supplies the industry. The courts have decided Microsoft has a monopoly with Windows. This settlement essentially says the industry does not need any rigorous protection from that monopoly.