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Microsoft no longer faces the threat of a court-enforced breakup.

The U.S. Department of Justice and state attorneys general told Microsoft Thursday they will not seek to break the software monopoly in two when the antitrust case returns to the U.S. District Court. The plaintiffs also announced they will not pursue a rehearing of the claim that the company illegally tied the Windows operating system to Internet Explorer browser software.

Plaintiffs will seek an order limiting Microsoft's conduct, rather than urging the company be split into separate operating system and applications businesses as had been ordered by the District Court during an earlier phase of the case, according to a DOJ press release. The U.S. Court of Appeals for the District of Columbia overturned the breakup order on appeal, handing it back down to the lower court for reconsideration.

Microsoft officials remained largely tight lipped about the news, although Jeff Raikes, group vice president for business productivity group at Microsoft, did note that many company employees were pleased by the news.

"Certainly it was a very interesting and for many a very exciting announcement that they wouldn't seek to break up the company," he says.

Raikes was also careful to point out that company officials have yet to fully absorb the DOJ's latest news.

"We still need the opportunity to take a look more fully at what they [the DOJ] are saying about their approach to this case. The most important point is this is a process that involves a lot of discussions."

States on Board

The DOJ has taken the lead on the antitrust case, in which 18 states are also plaintiffs.

The states are on board with the DOJ on the decision not to pursue a breakup, says Tom Miller, attorney general of Iowa, through a spokesperson. "Since the court of appeals decision, the states and the DOJ have directed their efforts to one objective--the quickest and the most effective remedy possible," he says. "This decision is consistent with that objective."

The court will also be asked by the plaintiffs for time to investigate recent industry developments to evaluate whether changes in the market have made additional conduct restrictions necessary, according to the release. The lower court initially ordered both conduct and structural remedies. One conduct remedy, for instance, called for less restrictive licensing practices. The DOJ "is taking these steps in an effort to obtain prompt, effective, and certain relief for consumers," the statement says.

It isn't immediately clear whether efforts to expedite the case's resolution are speeding up settlement negotiations between the plaintiffs and Microsoft. "We remain committed to resolving the remaining issues to this case," says Microsoft spokesman Jim Desler, but he refuses to say whether this meant the two sides were closer to settlement talks.

Microsoft Plays Tough

Microsoft has been a tough negotiator throughout the process and reluctant to make concessions, one observer notes.

"Microsoft just basically gets away with murder and its revenues keep rising," says James Love, director of the Consumer Project on Technology, an IT consumer watchdog agency in Washington D.C. "There's no evidence that Microsoft has been made to pay the price yet," he says. "Their concessions are always less than advertised."

The DOJ's move clears the decks for a fast trial and an expedited judgment, says Rob Enderle, an analyst at Giga Information Group.

DOJ: Prevents Illegal Conduct

Worried about prolonging what has already been a lengthy trial, the DOJ believes that the appellate ruling established a basis for relief that will prevent future illegal conduct by Microsoft and will open the field to competition, according to the statement. The Appeals Court unanimously upheld the lower court's finding that Microsoft illegally maintained its monopoly on the operating systems of PCs.

In the appellate ruling in June, the Appeals Court overturned behavioral and structural remedies ordered by District Court Judge Thomas Penfield Jackson, including dividing Microsoft into two companies. The panel of appellate judges overturned those remedies, and ordered the case go back to the District Court.

The Appeals Court left the issue of "commingling" to the lower court for rehearing. Plaintiffs accused Microsoft of tying the software for its operating system and Web browser together in a way that prevented browser competitors from competing fairly.

The Appeals Court further ordered that Jackson be removed from the case because of inappropriate public comments he made about Microsoft. District Court Judge Colleen Kollar-Kotelly was chosen by lottery to preside over the case. She has set a September 21 date for a status conference hearing in the matter.

-- Stuart J. Johnston contributed to this report.

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