Analysis: Microsoft's negotiating gambit

Microsoft has been found guilty of unfair competition

By Stephen Evans in New York

Microsoft has accepted that it broke the law in the way it did business.

The world's biggest software manufacturer has agreed to change the way it operates in future.

But the concession may not be enough to stop the courts imposing big penalties on it.

Microsoft is engaged in a long-running battle in the American courts - a battle for its very existence as a single entity.

Unfair competition

Two years ago, a lower court found it guilty of unfair competition and ordered that it be broken up.

Microsoft must change its practices

A fortnight ago the higher court agreed that the corporation had used unfair tactics to try to drive the competition out of business, but said breaking the company up was too drastic a remedy.

The nub of the argument accepted by both courts concerns what is known as "bundling".

Microsoft tied the sale of its main products to that of lesser ones - in other words, if you used one Microsoft product you had to use others, even though the secondary products might have been better produced and priced by Microsoft's rivals.

After reading this judgement, Microsoft has agreed that it broke the law and that it will not now bundle its products together.

If you want to mix-'n-match between companies, it will be easier to do so.

Opening move

It is a significant concession, but one made with the courts still on its back.

The case is working its way through the courts

After the last judgement, the penalty was left open, dependent on negotiations with the Justice Department.

This is Microsoft's opening move - not ending the dispute, merely opening negotiations.

It also shows that the judgement against Microsoft will limit it and cost it money.