In a step aimed at quelling its antitrust critics,

Microsoft

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Wednesday loosened its death grip on the PC desktop, allowing computer manufacturers to choose which software icons will appear on their start-up screens.

The move comes just weeks after the

U.S. Court of Appeals

upheld a lower court's ruling that Microsoft had illegally maintained a monopoly through its Windows operating system.

At first blush, the move looks like an olive branch that Microsoft is extending in hopes of a settlement in the case.

"This announcement does not take the place of settlement discussions with the government parties or any future steps in the legal process," CEO Steve Ballmer said in a statement. "However, we wanted to take immediate steps in light of the court's ruling. We are hopeful we can work with the government parties on the issues that remain after the court's ruling."

Microsoft said that new licensing agreements with PC manufacturers will allow them to remove Microsoft software icons from the Windows desktop. Among new options, manufacturers will be allowed to remove the Internet Explorer icon that appears on the operating system's "Start" menu from the forthcoming release of Windows XP, as well as previous versions of the operating system.

Under Redmond's old rules, computer makers could add icons from other software makers, such as that of the rival

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Netscape

Internet browser, but they weren't allowed to remove Microsoft's icons. Those contracts were found illegal by a federal court judge, a decision that was upheld on appeal.

PC manufacturers will also be able to add software icons of their choosing (read products from Microsoft's competitors) on the Windows XP desktop. Microsoft said it had wanted to maintain a clean look and feel to Windows XP, uncluttered by numerous icons. But Wednesday's move relinquishes the software behemoth's control over that space, allowing PC makers to add what they wish.

Microsoft also said consumers would have the ability to remove components of the Internet Explorer program from the operating system.

The company said that while Wednesday's decision will require more development work and testing for Windows XP, it won't affect the operating system's Oct. 25 launch date. For many observers of the stock, that date is already too late to capture the traditional surge of back-to-school buyers.

In May 1998, the

Justice Department

and attorneys general from 20 states sued Microsoft for hindering competition and innovation in the software industry through its Windows operating system monopoly. One state later dropped out of the suit. Microsoft's bundling of Internet Explorer was a key issue in the case, and the lower court eventually decided almost exclusively in the government's favor, finding that Microsoft maintained an illegal monopoly. It ordered the breakup of the company.

But when it came down with its decision

last month, the appeals court all but scuttled Judge Thomas Penfield Jackson's recommendation that the company be broken up. However, it sent the question of whether Microsoft engaged in monopolistic activities by tying its Internet browser to its Windows operating system back to a lower court. That most certainly will be a key issue in any settlement talks between the company and the government.

"We recognize that some provision in our existing Windows licenses have been ruled improper by the court, so we are providing computer manufacturers with greater flexibility and we are doing this immediately so that computer manufacturers can take advantage of them in planning for the upcoming release of Windows XP," Ballmer said.