Hold everything! Just as Microsoft was supposed to launch its defense, the software giant planned to file a motion to dismiss the federal antitrust case entirely on the evening of Jan. 12. Microsoft's attorneys concede that there's not much chance that Judge Thomas Penfield Jackson will actually act on the motion, but they want to use the opportunity to point out weaknesses in Justice's case and put this view on the record, if the case goes to appeal.

The Justice Dept., naturally, disagrees. Says Antitrust Div. chief Joel Klein, who showed up to see the government's final witness on Tuesday, Jan. 12: "The U.S. has introduced compelling evidence showing Microsoft has engaged in widespread patterns and practices designed to crush any threat to the operating-system monopoly."

Microsoft isn't the only party attempting sleight of hand. Justice seemed to be trying to make the testimony of Microsoft's leadoff witness disappear, even before he took the stand. Massachussetts Institute of Technology economics professor Franklin Fisher, attempted this feat without having seen the written testimony of Microsoft's first witness, Richard Schmalensee, dean of MIT's Sloan School of Management. Even though he hadn't read the written testimony submitted by his MIT colleague -- a tome filed on Jan. 11 -- Fisher tried to undercut Schmalensee's general views on why Microsoft isn't a monopoly. It's an important opportunity: As Microsoft goes on the offense in the second half of the trial, Justice will take any chance it can get to undermine the defendant's case.

DIFFERENT MARKETS? So, under questioning by Justice's lead attorney David Boies, Fisher first attacked the key pricing question. In his written testimony, Schmalensee said prices in the software industry hadn't dropped in the same manner as prices in the rest of the PC industry because software is more labor-intensive. Schmalensee's point is that on a qualitative basis, software prices really have come down because customers get more for their money.

The pricing issue is important because Justice is trying to show that Microsoft is able to raise prices because it's a monopoly, something that's harmful to consumers. Fisher parried Schmalensee's point by saying there's a big distinction between the software industry in general, where competition is intense, and operating-systems software, where Microsoft has a 90%-plus market share.

Fisher also spoke about how a monopoly can exercise its power in many ways, not just in controlling prices. And he argued that Microsoft might not be raising prices as much as it could for a variety of reasons. Schmalansee's written testimony argues that Microsoft hasn't raised its prices because it fears losing customers to competitors.

Fisher pointed to monopoly benefits besides the ability to raise prices that Microsoft enjoys. These include the ability to sell other Microsoft products to computer companies, such as Office, when they buy Windows. Judge Jackson chimed in that it would make sense to keep operating-system prices low because that would contribute to an overall low PC cost and would encourage more people to buy PCs, which would expand the market even more for Microsoft software.

GO -- OR GET TAKEN? Both sides tried to batter down the other's interpretation of whether any harm had been done to consumers. Microsoft says its competition in the browser market has brought on more innovation. Fisher argued that Microsoft, through its agreements with PC makers and Internet service providers, restricted consumer choice. He also raised the specter of declining innovation and higher OS prices in the future. Referring to Microsoft's ad slogan, Fisher said "Where do you want to go today will be where Microsoft chooses to take you and how Microsoft wants to take you there."

Fisher also tried to downplay future threats that Microsoft faces. Schmalensee argues that Microsoft isn't a monopoly because it's constantly under seige by competition, known and unknown. Technology that has the potential to dethrone Microsoft ranges from the freeware Linux operating system to Sun's Java to the emerging trend of information appliances such as smart phones or Web-cruising TVs that may not use Windows. Justice countered by cited America Online CEO Steve Case, who said in a recent article that noncomputer devices wouldn't be a real alternative to Windows for many years.

Microsoft will try on Wednesday, Jan. 13, to undercut Fisher's rebuttals to Schmalensee's testimony, let Justice close its side of the case, and, perhaps, finally get Schmalensee, its first witness, on the stand.

By Heather Green in Washington