Microsoft begins its defence

The defence began in secret four months after the start of the trial. Judge Thomas Penfield Jackson agreed to the request by Microsoft to exclude the news media.

The closed session was expected to hear friendly testimony from two of the biggest personal computer manufacturers, Dell and Compaq.

They exclusively supply Windows software, and neither wants to reveal publicly how much they pay below the list price for the operating system.

Prices kept low

Microsoft said that the low cost of Windows proved it was not a monopoly.

"If Windows really were a monopoly, as the government alleges, it should be able to charge more than 5% of the cost of a new PC," a Microsoft lawyer told The Wall Street Journal newspaper.

The company, which supplies 90% of the world's PCs, says its prices have remained flat since 1990.

"What's really happened is that the Microsoft has invested hundreds of millions of dollars every year to develop better operating systems for consumers," the company said.

Government case

The government wrapped up its case with testimony by MIT economics professsor Franklin Fisher. He supported the Justice Department's case that Microsoft had tried to extend its monopoly on operating systems to the Internet and set out to destroy rival Netscape by giving away its browser for free.

Microsoft argues that the software industry is a risky business where success in one round does not guarantee survival into the next.

It has filed 300 pages of testimony from rival economics professor Richard Schmalansee which argues that you must look at the software industry over time, not just in a snapshot.

But a Justice department lawyer said that argument was "dazzling hypocrisy" and that Microsoft crushed the competition by fair means or foul at each stage.

"What Microsoft has done to damage competition is to use its dominance in the operating system market to crush any innovation which threatens its dominance," a Justice Department lawyer said.

Dramatic turn

The trial is certain to stretch into March as Microsoft plans to call a dozen witnesses to counter the government's case. In December the case seemed to take a dramatic turn when AOL bought Netscape, the browser company that Microsoft was accused of excluding from the market.

At first, the judge suggested that the deal might have a bearing on the case. But last week he decided that it was not relevant after reading an article citing Steve Case, chief executive of AOL saying he would never compete head on with Microsoft's operating system.

So far, neither side has said it plans to call AOL.