Google filed a 49-page document with the Justice Department in April claiming Vista's desktop search tool slowed down competing programs, including Google's own free offering, and that it's difficult for users to figure out how to turn off the Microsoft program.
Microsoft initially dismissed the allegations, saying regulators had reviewed the program before Vista launched. However, Brad Smith, Microsoft's general counsel, said in an interview last week that the company was willing to make changes if necessary.
Google's claims were intended to show that the world's largest software maker is not complying with a settlement reached in 2002 after the government concluded Microsoft used its near-ubiquitous Windows operating system to throttle competition. As part of the settlement, Microsoft is bound by a consent decree that requires it to help rivals build software that runs smoothly on Windows.
Tuesday's regularly scheduled status report on Microsoft's post-antitrust business practices detailed a compromise that would give computer users clearer options for picking a non-Microsoft desktop search program.
The report said Microsoft will let PC users and manufacturers like Dell Inc. set a non-Microsoft program such as Google Desktop as the default. Microsoft will also add a link to that alternate program in the Windows Start menu.
Currently, when Vista users browse through their documents, access the control panel, or do other system-related tasks, a Vista search box appears in the upper-right corner of the window. That box will remain, and it will continue to use the Microsoft search engine, but Microsoft will also add a link to the default desktop search program.
However, Google said the compromise didn't go far enough.
"Microsoft's current approach to Vista desktop search clearly violates the consent decree and limits consumer choice," said David Drummond, Google's chief legal officer. "These remedies are a step in the right direction, but they should be improved further to give consumers greater access to alternate desktop search providers."
In response to claims that Vista's "Instant Search" slows competing products, Microsoft agreed to give competitors technical information to help optimize performance.
Microsoft said it expects these changes to be available with its first service pack for Vista, putting to rest speculation among Microsoft watchers that the company would do away with its practice of catchall software upgrades. The software maker plans to release an early version of Service Pack 1 by the end of the year.
"We're pleased we were able to reach an agreement with all the states and the Justice Department that addresses their concerns so that everyone can move forward," Microsoft's Smith said in a statement.
Federal regulators worked with 17 U.S. states, also parties to the antitrust case against Microsoft, to nail down the details of the compromise.
"This agreement, while not perfect, is a positive step toward greater competition in the software industry," California Attorney General Jerry Brown said in a statement.
In the report, regulators also said Microsoft's work to improve technical documentation for software licensees continues on schedule, and that they are "encouraged by the quality of the new documents."
A hearing to review Microsoft's adherence with the consent decree is scheduled for June 26 in U.S. District Court for the District of Columbia.
Google's complaint came just a few days after Microsoft called for antitrust regulators to scrutinize the search company's planned $3.1 billion acquisition of online ad service DoubleClick Inc.
These recent moves are part of a broader battle between the two. While Windows continues to dominate the desktop operating system market, Google's ability to make money from search advertising has left Microsoft scrambling to catch up. Google has also stepped into traditional Microsoft territory in the past year with a set of free, Web-based programs for word processing, spreadsheets and presentations.