Stiff penalty could shatter the industry

First the good news: The new administration's officials in the Department of Justice have decided not to murder the Microsoft Corp. and carve up its corpse. Now the bad news: They have chosen the more humane option of slow torture.

The Justice Department's new policy is certainly better - or, to be more accurate, less bad - than the demands made by the Clinton administration. The old Justice Department wanted to hack Microsoft to pieces, splitting it into two or three companies and placing its Windows operating system under the control of court-appointed regulators and envious competitors. Even worse, they wanted to enforce the stagnation of Windows, opposing the addition of new features and outlawing the "bundling" of the operating system with extra features such as Web browsers.

When you consider the central role Microsoft has in the computing industry, with its operating system running on virtually every PC, you realize that dismembering Microsoft means reorganizing the whole industry. Imagine the traumatic effect of such a radical, government-imposed restructuring, combined with a decree to stop all improvements to Windows. Wall Street could imagine it, too, which helped trigger last year's tech-stock crash.

But now the Justice Department has backed off. In addition to dropping the demand to break up Microsoft, the Bush folks have also dropped any objections to "bundling." This would seem to free Microsoft to introduce new features without fear of reprisal, starting with the release of Windows XP later this year. Perhaps more important, this new stance will also clear the way for a quick settlement of the case, helping to lift the cloud of uncertainty that hangs over the industry.

But that cloud will be only thinned, not lifted. The Justice Department has moderated its Clinton-era regulatory bloodlust - but it is still pursuing the intrusion of the antitrust laws into the free market. That means that Microsoft faces, as the alternative to death and dismemberment, the prospect of slow torture by capricious and unpredictable judicial rulings.

After all this wrangling with the Justice Department, there is still another shoe waiting to drop: private antitrust suits by competitors seeking to loot Microsoft's treasury by claiming treble damages under the antitrust laws.