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Microsoft case in last hearing before final ruling

The software giant and the government face off for the last time as the landmark antitrust case goes before the judge for a final ruling.

WASHINGTON--Microsoft and the government today face off for the last time as the landmark antitrust case goes before the judge for a final ruling.

Legal experts expect little from final oral arguments that will affect the case's outcome. The larger drama may be ongoing settlement talks in Chicago, which appear either on the verge of breakdown or breakthrough.

After 76 days of testimony, U.S. District Judge Thomas Penfield Jackson's "findings of fact," conclusions of law submitted by both sides and a flurry of supporting legal briefs, the case comes down to today's hearing. After that, Jackson will draft his ruling, which could come at any time.

Microsoft's day in court "It will be very unusual for something dramatic to come up during oral arguments that is going to change the direction of this case," said Rich Gray, an intellectual property attorney with Outside General Counsel Silicon Valley of Menlo Park, Calif.

Judges typically instruct lawyers not to repeat in oral arguments what they've written in their legal briefs, so some new ground could be covered.

Microsoft, for example, is expected to expand on its contention that the government is using the case to write new law and presented weak legal precedents in its conclusions of law. The Redmond, Wash.-based software maker may also argue that procedural changes during the trial favored the government, which is represented by the U.S. Justice Department and 19 states.

"In this case, the role of the oral arguments was as much a matter of setting a deadline by which the matter would be under submission to the judge," Gray said.

That deadline looms before both sides as settlement talks slog along, and it increases the pressure to reach an agreement quickly, said legal experts.

The negotiations picked up in intensity last week, but by the weekend the two sides had failed to reach a consensus, said sources familiar with the negotiations. One sticking point is agreement over how or whether to break up Microsoft into several smaller companies.

"I suspect Microsoft would be willing to go for some nonstructural remedies," said Stan Leibowitz, professor of economics at the University of Texas at Dallas business school. "But I keep hearing that some parts of the government camp, particularly the states, are crazed and won't settle for anything short of breakup."

Microsoft chairman Bill Gates last week reportedly said he would be willing to open the Windows source code "if that's all it took" to settle the case.

While many parties are calling for a physical breakup of Microsoft, something else may be needed to restore competition, and freeing the source code could be it, said legal experts.

"This is a 21st-century breakup, so you have to deal with the intellectual property question," Gray said. "To me, the only way to deal with a monopoly based on intellectual property is to replicate those intellectual property rights to competing companies."

Opening the Windows source code could mollify some of the states, which have been holding out for a solution that restores competition. But Microsoft would have to offer much more, Gray said.

Once the parties exit court today, the pressure to settle increases significantly, particularly for Microsoft, said legal experts. Should Jackson rule, as expected, in favor of the government, his findings of fact could be used in any of the 108 class-action suits pending against Microsoft.

The negotiations, which have taken on a charged emotional tone, appear polarized, with Microsoft offering too little to satisfy the government and trustbusters demanding too much for the software maker, said a source familiar with the discussions.

If negotiations break down, Microsoft will be forced to act on an appeals strategy, an approach some legal experts favor anyway. The U.S. Court of Appeals for the District of Columbia Circuit, which lambasted Jackson in an earlier Microsoft case, would likely Puppet masters: Who controls the  Nethandle the first phase of the appeal, and then the case potentially could go to the U.S. Supreme Court within 24 months.

Following final arguments, Jackson could release his ruling at any time, even the same day if he is so inclined, although that would be highly unlikely.

"I wouldn't even be surprised to see a decision within two weeks," Gray said.

"Jackson has really moved quickly on everything, even though it seems like it's taking a long time," Leibowitz said. "He really streamlines everything. The case and the findings of fact came quite quickly. I expect he will continue to move quickly."

Jackson will have worked out at least the broad strokes of his ruling already and today will likely reference a "bench memo" throughout the proceeding, said legal experts. The document, which is usually drafted by a judge's law clerk, often analyzes the two sides' briefs, suggests follow-on arguments and lays out probable lines of reasoning a ruling.

As the case winds down, supporters on both sides are expected to rally support around possible remedies--or what to do about Microsoft's alleged antitrust violations. Soon after issuing his ruling, Jackson will schedule remedy hearings, where the government is expected to ask for the breakup of Microsoft, said legal experts. In December, the Justice Department retained an investment firm for proposing different scenarios, particularly breakup.

Supporters on both sides are likely to make their own proposals public first, taking advantage of the media frenzy surrounding the case, said legal experts.

The Progress & Freedom Foundation, for example, on Friday will hold a conference in Washington, D.C., to discuss its remedy for dealing with Microsoft: creating three separate Windows competitors, but leaving the rest of Microsoft's products with one company.

Other proposals are expected over the coming weeks, both before and after Jackson's ruling.