Before recessing for the holidays on Dec. 16, U.S. District Judge Thomas Penfield Jackson gave Microsoft Corp. a small gift. He noted that America Online Inc.'s proposed takeover of Netscape Communications Corp. could have an impact on the antitrust case, and he ordered the Justice Dept. to share with Microsoft any of the documents it receives during the government's merger review. The merger, he noted, posed a "very significant change in the playing field" of the high-tech industry.

Jackson stopped short of Microsoft's request to start new legal discovery, which would involve subpoenas of evidence and depositions of executives. But Jackson noted that if Microsoft wasn't satisfied with the documents that are submitted as part of the merger process, the company can renew its request for additional information. "It does seem fair that Microsoft should review the terms and conditions of the transaction," Jackson said.

The judge's comment that the merger "could have some immediate effect on the market" gave Microsoft reason for holiday cheer. Since the announcement of the deal and a joint venture with a third Microsoft rival, Sun Microsystems Inc., Microsoft has argued that the merger proves the high-tech market moves more quickly than the courts and that the company could easily be toppled from its market-leader position. Executives from the three companies involved in the agreement have appeared as government witnesses. The government argues that Microsoft used its dominance in personal-computer operating systems to squelch a rival Internet browser made by Netscape.

BROWSER SWITCHEROO? Outside the courtroom, John L. Warden, Microsoft's chief trial counsel, said he hopes to prove from the merger documents that "Netscape is not going away." The contention from the government's expert economists that Microsoft will "end up with the lion's share of the browser share is nonsense," he concluded. Warden noted that AOL, one of the biggest distributors of browsers with Microsoft-based technology, could easily switch to the Netscape product once its contract with Microsoft expires on Jan. 1.

David Boies, the government's chief trial attorney, said the merger -- because it could change the complexion of the market -- could affect the scope of the remedy the judge could impose if he finds Microsoft violated antitrust law. And, he said, one never knows what could turn up in a merger review -- perhaps, he joked, some documents that showed Netscape had a secret browser that would wipe out the software giant. "Microsoft could always hope," he smiled.

But Boies noted that the merger plays into the government's hands. "I think the documents will show that Netscape, because of Microsoft's conduct, could not continue as an independent concern." He also said the merger has "nothing to do" with other elements of Microsoft's alleged anticompetitive behavior, such as restrictions it imposed on computer makers not to remove Microsoft's browser from the operating system.

Justice is required to review all large mergers. It has 30 days to complete its review once the companies formally present its case to the department. But it can extend the review if it needs more information. Because the papers submitted initially are fairly sketchy, it's the second request for information that Microsoft will be awaiting. If Justice doesn't ask for more information or Microsoft believes the documents in the second batch are inadequate, it will go back to the Jackson. That could delay the trial.

By Susan Garland in Washington