Only Day Two of the Microsoft antitrust trial -- and already there's a Silicon Valley version of the Japanese film Rashamon. Looking back to a key June 21, 1995, meeting between officials from Microsoft Corp. and Netscape Communications Corp, the participants each have totally different recollections of the main event.

To hear Netscape President James Barksdale describe it, Microsoft tried to pressure his company to stop competing with the software giant in the browser market. But John L. Warden, Microsoft's attorney, said in his opening statement on Oct. 20 that "Netscape's account of the meeting...is fantastical," and probably "promoted to elicit the government as Netscape's protector."

The June meeting provides the main focus of the government's antitrust suit against Microsoft. The Justice Dept. and 20 state attorneys general have accused the colossus of Redmond with using its Windows operating-system monopoly as a club to harm browser rival Netscape. Barksdale said in written testimony released on Oct. 19 that Microsoft officials proposed that the companies divide the emerging Internet browser market, with Netscape selling a browser only for non-Windows machines.

If Netscape rejected the deal, Barksdale said, Microsoft officials threatened to delay release of technical information that Netscape needed to ensure that its browser would run smoothly on top of Windows 95 -- which was to be issued two months later. Barksdale said Netscape turned down the proposal, and Microsoft withheld the crucial information until after the Windows 95 release.

ROUTINE? But Warden said nothing of the sort ever happened. He said Microsoft would prove that this was a routine meeting between two companies to explore the possibility of forging "some sort of collaborative effort" that would be of "mutually commercial benefit." He said Microsoft never proposed that Netscape stop development of a Windows version of its browser and that Microsoft never stopped assisting Netscape in its software development.

Getting to the bottom of this episode will be essential. If the judge sides with Justice's version of the meeting, he could rule that it was collusion to stifle competition, a violation of antitrust laws. If he agrees with Microsoft's version, that would undercut much of Justice's suit, which claims that Microsoft, once Netscape rejected the market-division deal, engaged in a number of anticompetitive acts to kill off Netscape's browser.

Warden spent much of the morning attempting to rebut these allegations of illegal acts. He characterized the antitrust case as "the return of the Luddites," the 19th century workmen who smashed labor-saving machines to protest technological progress.

"OUT OF THE BOX." One of those alleged acts was to integrate Microsoft's own Internet Explorer browser into Windows 98 -- which Justice says was an illegal attempt by Microsoft to extend its operating-system monopoly into new markets. But Warden said Microsoft was responding to consumer demand and that the new product was intended to make computing easier. He said one of Microsoft's witnesses -- John Rose, senior vice-president of Compaq Computer -- will testify that "consumers have no interest in piecing together the operating system from a grab bag of separate components. They want their computer to come out of the box and just work." He noted that Microsoft didn't decide to integrate the browser and operating system in response to the Netscape challenge but had been "talking publicly about information at your fingertips when [Netscape executive] Marc Andreessen was still a student at the University of Illinois."

Warden also rebutted the government's contention that Microsoft cut anticompetitive deals with Internet service providers in order to cut off Netscape's distribution. These deals required the providers to promote Internet Explorer in return for either money or valuable promotional space on Microsoft's Windows desktop. He noted that these deals were actually "procompetitive" because Microsoft had only 10% of the browser market when the contracts were first struck, enabling Microsoft to get its product into the market and give consumers a choice.

He also said most of the deals either were ended or will expire soon, so that "this issue is truly moot." Justice officials argue that it doesn't matter whether the agreements are still in effect. They intend to seek remedies, if they win, that would undo any harm in the marketplace.

BETTER FIT. One key deal in contention was with America Online, and an AOL official will be testifying for Justice. The government claims that Microsoft gave AOL a deal it couldn't refuse: It gave AOL choice space on its desktop in return for agreeing to distribute Microsoft's browser. But Warden argued that AOL chose Internet Explorer over Netscape's browser because AOL's own browser technology would work better with Microsoft's products.

Warden argued that for all of Microsoft's alleged illegal attempts to kill off Netscape, the company is still flourishing. He noted that according to Netscape's own figures, consumers downloaded 12 million copies of its browser during July and August. He also said that hundreds of Internet service providers distribute Netscape's browser, and that most of the country's largest companies use it. "The absense of substantial foreclosure" is "fatal to each claim," he said.

After the lawyers returned from their lunch break, Warden began one of the most critical parts of the entire trial: the cross-examination of Netscape's Barksdale. Picking apart his 127-page written testimony piece-by-piece, Warden roughed Barksdale up a bit but failed to poke any major holes in Netscape's arguments.

Warden's first line of attack was to portray Netscape as a company that had gone running to the government for help when it started losing to Microsoft in the marketplace. Among other things, Barksdale said he personally had at least six meetings with trustbusters and that his company had sent the agency at least two white papers on the subject of Microsoft's predatory tactics and what should be done about them. Warden later introduced an undated Netscape document that described the government's antitrust suits against Microsoft as an "opportunity for Netscape."

"Isn't it true that pressing the government actions against Microsoft was a key element of your corporate strategy?" Warden asked. Barksdale denied the charge.

BUNDLE BUDDIES. The next topic of discussion was the evolution of Netscape's two key products: the Navigator and Communicator browsers. Warden illustrated how the company had gradually bundled new features into these products -- just as Microsoft had through the years added functions to its Windows operating system. The point: It was hypocritical of Netscape to criticize Microsoft for bundling.

One of the most dramatic moments of the afternoon's testimony came when Warden asked Barksdale why Netscape bundled new features into its browser. "To make the product a better product," Barksdale responded. "You thought users would like it?" Warden asked. "Obviously," said a chastened Barksdale.

Throughout the afternoon, Warden attempted to show that much of Barksdale's testimony was inadmissible hearsay. At one point, for example, Warden zeroed in on Barksdale's statement that a key Microsoft employee had threatened to "cut off Netscape's air supply." Barksdale was forced to admit that he didn't hear the statement firsthand and didn't know where or when it was said. Earlier in the day, Microsoft moved to strike many of Barksdale's statements from the court record as hearsay. Judge Thomas Penfield Jackson denied the request but told Warden he would reconsider the issue later in the trial. "There is no question that some of it is arguable hearsay," Jackson said.

After the trial, Microsoft claimed that Warden's cross-examination had been "very damaging to the government's case." But the solemn, soft-spoken Barksdale never lost his composure. The Netscape boss will likely be on the stand for at least one more full day.

By Susan B. Garland and Michael France in Washington