NOT SO FAST

Washington Post: The vigor with which Microsoft has insisted that the recent antitrust ruling by a federal appeals court has no implications for its new operating system -- Windows XP -- has a familiar and worrisome ring. The software giant plans to release XP in October, which means shipping it to computer manufacturers this month. As has happened in advance of prior releases of Microsoft's major new products, the impending move has provoked concerns about what XP will do to competition in the software marketplace. And as has happened in the past, Microsoft is waving off such concerns. The difference, of course, is that Microsoft has now been found -- by a unanimous D.C. Circuit Court of Appeals -- to be a monopolist that took illegal steps to maintain its dominant position. In the face of the court's powerful holding, the manner in which the company is now proceeding risks antagonizing the courts and the Justice Department and making settlement of this case more difficult.
Competitiveness concerns: This is a particular shame, as the company has actually gone some way in XP to address competitiveness concerns. In earlier versions of Windows, Microsoft integrated its browser into the operating system and prevented computer makers from shipping rival products on an equal footing. In XP, the use of the Windows monopoly as leverage in emerging software markets is subtler, and the competitors this time around are not just defenseless start-ups but major corporations such as Kodak and AOL Time Warner.
Windows XP integrates Microsoft's own instant messaging, photo imaging and media playing services into the operating system. It does not block competitors' software in these areas from also being loaded onto computers, either by manufacturers or consumers. Microsoft has, however, tilted the playing field in its favor by using the operating system to guarantee its software a relatively privileged place, whether or not manufacturers or consumers choose it. Under the rule the court recently articulated, Microsoft will have to be able to show that the consumer benefits of this arrangement outweigh the anticompetitive effects. At this stage, that is far from certain.
Windows XP also incorporates software that facilitates users' running of Internet-based applications. To the extent that this aspect of the operating system is designed to protect or extend Microsoft's underlying monopoly, it too may raise concerns under the court's ruling. And complicating everything is the question of how the current release should be judged in the context of the findings of past misconduct by the company.
Train wreck: One would think that all of this uncertainty would induce caution, to avoid a situation in which XP is released only then to produce a train wreck in the continuing antitrust litigation -- or, worse yet, new litigation. Microsoft must realize that it has, in many sectors, exhausted its goodwill and that it can ill afford now to be appearing to thumb its nose at the federal courts by once again pushing limits.