How hard can a large firm lean on its junior partners and competitors? What are the legal guidelines for dominant US technology companies? And was US District Judge Thomas Pen field Jackson right when he ordered the break-up of Microsoft into two firms last year?
These questions are being tackled by seven US appellate judges of the District of Columbia Circuit, who yesterday began two days of hearings on whether Judge Jackson had a legal basis for splitting up the world's biggest software maker.
Many legal experts predict the court will challenge Judge Jackson's break-up order while upholding his ruling that Micro soft illegally maintained its monopoly for Windows, which powers more than 95 per cent of the world's PCs.
Such a decision could open the way for the US Justice Department to beat a retreat and seek a less harsh remedy than a break-up, a course which would signal the Bush administration is less willing to pursue the antitrust case against Microsoft than the Clinton White House.
However, Microsoft found itself on the defensive right from the start of the hearing yesterday. At one point chief judge Harry Edwards told the company's lawyers that its actions "look predatory to me".
In early arguments that focused on Microsoft's battles with Netscape, Judge David Tatel said: "I don't see how you can get a reversal." And Judge Douglas Ginsburg accused the company of using "saturation bombing" tactics against Netscape.
On June 6th last year Judge Jackson found Microsoft had used illegal methods to protect its monopoly in PC operating software by stifling the distribution of a rival Internet browser, Netscape Navigator, made by Netscape Communications, now part of AOL Time Warner.
"Microsoft, as it is presently organised and led, is unwilling to accept the notion that it broke the law," Judge Jackson said, in proposing that one company would manage the Windows operating system and the other would manage all of Microsoft's software, such as its Office Suite and Internet Explorer browser.
Actions designed to "exile" Netscape Navigator from PCs sold by manufacturers like Compaq and Dell included restrictions on how computer manufacturers could display Internet Explorer, threats to withhold Windows licences or advanced releases of new products, and other incentives.
Microsoft contends it did not stifle competition or harm consumers, but rather promoted innovation. Its lawyers also say that Judge Jackson showed bias in remarks to reporters and book authors.
"Nothing Microsoft did foreclosed Netscape from any portion of the marketplace," Mr Richard Urowsky, Microsoft's lawyer, told the appeals court. "Millions of people chose to use Navigator in spite of the fact that [Microsoft's] Internet Explorer was included in every copy of Windows."
The Justice Department and 17 states counter that Microsoft "deliberately embarked on a multifaceted campaign of anti-competitive conduct to protect its operating system monopoly" from the threat posed by Netscape Navigator.
The eventual finding of the appeals court, expected in May, could be the last episode in the long-running case against the Seattle firm which has 40,000 employees worldwide.
"There can be no doubt the DC Circuit is treating this as an epic case of profound importance to the national economy but also to the law of antitrust," said Mr Kenneth Starr, the former Whitewater independent counsel who is promoting the government's case for a break-up.
In a separate development which does nothing to erase its image as a bully, Microsoft faces federal charges of false and deceptive advertising for the second time in less than a year.
The Federal Trade Commission is investigating Microsoft's aggressive advertising campaign against Palm, whose products compete against hand-held devices using Microsoft's Windows software, according to the Wall Street Journal. It said the FTC found Microsoft's "Can Your Palm Do That?" ads last year deceptively claimed features that were unavailable unless buyers spent more for wireless capability. Microsoft wants an out-of-court settlement.
