When the Court of Appeals sent the Microsoft case and the Justice Department’s proposed “break up” remedy back to the lower courts for a fix, everyone - at least everyone in the press and punditry pen - seemed to think it marked a victory for Bill Gates. His company would now remain whole and, even if he were eventually punished, his web browser would have even more time to establish itself as the Internet’s standard. I still receive email asking why I haven’t spoken out against the decision.

Well, I haven’t criticized the Court of Appeals decision because it was right.

Having had a chance to review their findings, as well as the opportunity to speak with insiders at Redmond and a few State Attorneys General offices, I believe that this decision - rather than taking the pressure off Microsoft - could potentially deal a blow to Bill Gates far more deadly than anything Joe Klein (conceiver of the original break up plan) could dream up. And, if the lower court and Justice Department now act intelligently in their design of a new remedy, successfully break the effects of Microsoft’s longstanding monopolistic practices.

First, what happened: Judge Jackson originally found that Microsoft had a monopoly in the OS market, and was using this power of monopoly to maintain its position. Further, and wading into somewhat murkier waters, Jackson found that Microsoft was using its browser monopoly to monopolize the browser market. He then adopted Joe Klein’s remedy proposal: to break Microsoft in two. One of the new companies would be dedicated to the Windows operating system, and the other would make applications, like Microsoft Office.

The appellate court rejected the notion that Microsoft monopolized the browser market, because there is no browser market. At least no evidence of a browser market was presented; most browsers are given away. They also rejected the remedy, unsure of how it would solve any real antitrust issues.

What the court did hold up, quite emphatically, was the charge that Microsoft enjoys a monopoly over the OS market, and that it has used its monopoly power to maintain this position - illegally, by definition. Then they sent the case back for a sanely devised remedy.

The aggregate brainpower of the appellate court and its affiliated guest thinkers was, perhaps, the greatest in the modern history of jurisprudence. And their decision reflected a keen understanding of the law, technology, and the nature of business. Antitrust practitioners with whom I have consulted agree that this is one of the most intellectually rigorous decisions made by a court in recent years.

Though conceived by jurists considered to be quite friendly to Microsoft’s interests, this decision gives the Justice Department and the States Attorneys General all they need to completely resolve the situation - that is, if they can focus on something other than their spiteful (if justified) lust for vengeance against Bill Gates Evil Empire for long enough to concentrate, instead, on helping liberate the computer operating system from Microsoft’s non-competitive stranglehold.

The Justice Department chose to punish and publicly humiliate Bill Gates with a break up of his company rather than addressing the need for a remedy to the OS monopoly. As the Appellate Court must have surmised, breaking up Microsoft into two companies would not change their power over the OS. It was a policy of containment, really, in which Microsoft would be allowed to maintain the monopolies it has already won, but no more.

Of course, the new spin-off company would have owned Office, already something of a monopoly in its own right. In any case, the applications company would have little motivation to compete against its parent in the OS market, as Klein believed would happen. It has every reason to keep Microsoft - for which it makes the best and ‘original’ software - healthy.

Had the Justice Department’s proposal been subjected to a hearing, as Microsoft itself suggested, these flaws would have been exposed. Now, the 7-0 appellate decision refocuses the parties and the lower court on the real issue of the case: the OS market.

So, what should the Justice Department and Attorneys General do? Focus on reintroducing innovation and competition to the browser market, rather than just punishing Bill Gates. Here’s just one such remedy: force Microsoft to license its OS to five of its competitors. Set up an auction, supervised by the Justice Department, in which companies bid for licenses to the entire Windows OS at its current stage of development, as well as its source code. Their bids can include an upfront price, ongoing licensing fees - whatever the market will bear.

Then, these five companies can take whichever direction they want in the further development of the OS. They all start with the same advantage: all those Windows-compatible programs out there will work on everyone’s OS.

Each version of Windows can follow its own development path. If, say, IBM goes in a direction that more users like, then it is their version of Windows that will begin to win market share. At least Windows will be able to evolve based on competition rather than monopoly. And Microsoft will have to compete and innovate right along with everyone else. The object is not to cripple Microsoft, but to break their monopoly and improve the climate of OS development.

Of course mine is just one possible remedy. There are many. The important thing for the Justice Department to accept is that the “conduct” restrictions and structural remedies, of which they are so fond, only feel like substantive victories. If they don’t actually introduce competition to the marketplace, they aren’t remedies at all.