The proposed contract stipulated that manufacturers that included a CD containing the Windows Media Player and other software would not include any other media players with the shipped product.

Not Fully Vetted

The information was revealed in the Justice Department's biannual reports that monitor the software giant's compliance with the terms of its antitrust settlement.

According to DOJ, once the complaint had been filed, Microsoft sent out a final distribution agreement stating the "program is not exclusive and that if portable music device manufacturers choose to participate in the program, they are still free to include any software they wish" in addition to the Microsoft CD.

According to a Microsoft spokesperson, the original agreement binding manufacturers to Windows Media Player had not been fully vetted by the company's legal department; otherwise, the exclusivity clause would have been caught. "This was only a draft description that we sent to device manufacturers for the purpose of getting feedback," spokesperson Stacy Drake was reported as saying.

The Justice Department stated in the report that it does not see any need to penalize the company: "While it is unfortunate that the drafts specification contained the exclusivity provision, Microsoft took quick steps to correct this error and Plaintiffs do not believe any further action is required."

Seems Like Old Times

Analysts said that if Real, Yahoo, or another developer had included such an exclusivity clause, no one would have questioned the deal. However, because Microsoft is under an antitrust agreement, the company needs to be careful not to overstep its restrictions, said Ted Schadler, principal analyst at Forrester Research. "Here is a situation where someone at Microsoft made an error in judgment that was quickly rectified."

The original agreement was an attempt by Microsoft to position its Windows Media Player as the go-to source for online digital audio in order to compete with Apple's iPod and iTunes, according to Nitin Gupta, a Yankee Group analyst.

"There is value in trying to establish oneself as the portal for online services and by having a tighter link with the hardware on which that content will be consumed," he said. "There's value in that and of course they're going to try that. Whether the legal community will allow that to happen is a different story."

The tough part, Gupta said, is in becoming that portal. He said the company and its partners need to focus their marketing on allaying consumers' concerns that the technology and devices do not have the same vertical alignment as Apple's iPod and iTunes. "[Microsoft] needs to find those niche markets and cater to them appropriately."