Is the Microsoft trial over?

When Microsoft took centre stage at its antitrust trial last month, its attorneys promised to destroy the Department of Justice's case. Instead, Microsoft is self-destructing.

The software maker's first three witnesses -- the heavyweights of Microsoft's defence -- have dug the company into a deep hole with slip-ups on the witness stand and flops in presenting key evidence. Now, many expert observers -- including some who originally believed Microsoft (Nasdaq:MSFT) would beat the government's rap -- believe that, barring a remarkable turnaround with its nine remaining witnesses, the software kingpin is headed toward defeat in the Washington district courtroom.

"Microsoft is doomed," said James Loftis, a partner at Collier Shannon, Rill & Scott, in Washington. Microsoft officials, as they have since the start of the trial in October, maintain a steadfast optimism about the outcome. "This case is not about videos or e-mails but about specific legal issues," said Greg Shaw, a spokesman for the company.

From the start, however, Microsoft has done little to turn those legal issues in its favour. For its first witness, Microsoft rolled out its lone economic expert, considered a cornerstone in any antitrust case. Richard Schmalensee, a professor at MIT, hurt Microsoft more than he helped, many observers said. Next came Paul Maritz, group vice president of applications and platforms at Microsoft. Pitched as the heavy hitter who could deflate the impact of Microsoft's damning e-mail messages, he was instead grilled by lead DOJ attorney David Boies regarding statements he allegedly made about "cutting off Netscape's air supply."

Maritz first denied that he made the comment, then he hedged after being shown sworn depositions by two Intel (Nasdaq:INTC) executives in which they both testified that Maritz said Microsoft would "embrace and smother" Netscape.

This week's testimony by Jim Allchin, senior vice president of the personal and business systems group at Microsoft, was even more damaging than Maritz's. Allchin bore the brunt of a major screw-up involving a Microsoft videotape of a demonstration designed to dispute a utility created by DOJ witness Edward Felten, a Princeton University computer science professor. During cross- and re-cross-examination, details emerged showing that Microsoft had used multiple machines to conduct the tests and that a system that was supposed to be stripped of Internet Explorer appeared to have a piece of the browser still installed. Ultimately, Microsoft was forced to redo the demonstration, which it later admitted was a simulation, not a real test.

Outside antitrust attorneys admitted they're somewhat baffled by Microsoft's performance thus far. All agreed, though, that Microsoft's troubles are not totally self-inflicted, pointing to the prowess of lead DoJ litigator Boies. "He is a very, very good trial advocate," Loftis said.

If it loses, Microsoft will certainly appeal. But the company shouldn't bank on the court of appeals to be its saviour. Microsoft has consistently cited an appellate court ruling in favour of the company's right to integrate Internet Explorer into Windows 98 as proof that it will be vindicated. However, officials and attorneys have glossed over wording in the ruling that leaves the door open for a reversal.

"The factual conclusion is, of course, subject to re-examination on a more complete record," the appellate court said in its decision last summer. In lay terms, the statement leaves room for the next appeals court panel to do an about-face. "This was a ruling on a preliminary motion, so if a more complete set of facts is entered into the record, the wording gives the appellate court a way to issue a different opinion," said Stewart Gerson, a partner at Epstein, Becker and Green, in Washington.

Rick Rule, a legal consultant to Microsoft and a partner at Covington and Burling, disputes such speculation. "Sure, they left the door open," Rule said. "But if the government can't challenge that principle, it's doubtful the government is going to change the court's opinion."