Snipes and sniggers at the house that Bill built

It has been a bad week for Microsoft. David Usborne reports from New York

IT WAS one of the more surprising assertions made by Microsoft as it stands trial in Washington on charges of monopoly abuse. One of its lawyers got to his feet one day last week and suggested that the company had been forced to become "paranoid", so numerous were the challenges to it from thrusting new rivals.

In the context chosen by the lawyer, Michael Lacovara, the claim was a hard one to swallow. He specifically cited the growing popularity of a software system named Linux, which is available for free over the internet from a tiny North Carolina outfit called Red Hat. The fact remains that Microsoft is still capitalised at $280bn (pounds 169bn) and has its Windows systems on no less than 90 per cent of the world's PCs.

And yet paranoia may be what Bill Gates, the man who created Microsoft, and his lieutenants in Redmond, Washington State, are feeling this weekend after seven days that brought the company nothing but bad news. It was not just that the tide, by general consensus, seems to have turned against Microsoft in the trial. It was also taking a bruising from beyond the nation's capital.

Arguably, in fact, this was the worst week that Mr Gates can remember. It prompted a stream of articles and columns implying that the empire he has built with such astonishing success since his nerdy student days may finally be on the brink of disintegration.

In Washington, the government aggressively continued to press its case that Microsoft has for years used its dom- inance in the software sector to freeze out competitors such as Apple, Netscape and even IBM. Prosecutors have made hay with a welter of evidence, including a series of company e-mails that seem to illustrate a pattern of dastardly tactics.

But where Microsoft is suffering the most seems to be in the videotaped deposition that Mr Gates gave to the government back in August to avoid having to appear at the trial in person. All last week, prosecutors played extracts of the video. They portrayed a chief executive apparently unwilling to show much respect for the judicial process and dodging the questions whenever he could.

Most telling, perhaps, has been the sniggering and guffawing from so many in the courtroomthat has punctuated the showing of the Gates interview. Even Judge Thomas Penfield Jackson, who must ultimately decide the case (there is no jury) has been seen repeatedly chuckling and shaking his head. When lawyers for Microsoft protested at a meeting in chambers with Judge Jackson that the government was showing snippets of the deposition out of context, the judge tellingly replied: "I think your problem is with your witness, not the way in which his testimony is being presented."

Another blow to Microsoft came late on Tuesday from a different courtroom, in California. This was a preliminary ruling in a separate lawsuit brought against Microsoft by its bitter competitor, Sun Microsystems. At that trial, Microsoft stands accused of taking, under a licensing agreement, the Java software language originally invented by Sun and altering its code slightly. According to Sun, this has undone the central characteristic of Java, namely that it should be useable on any software platform, whether it be Microsoft, Macintosh or IBM.

In his ruling, Judge Ronald Whyte issued an injunction instructing Microsoft to correct the Java code on its Windows 98 software within 90 days. Microsoft said it would comply. It insisted, meanwhile, that its loss in California would have no bearing on the trial in Washington. Among those who were having none of that was Orrin Hatch, the senator from Utah and chairman of the Senate Judiciary Committee. He thundered: "I hope that senior executives at Microsoft will begin to see that, in the end, the facts and the law will prevail over its public relations campaign and muddled defences."

On Wednesday, Microsoft suffered yet another setback. Reports surfaced that America Online was considering ending its exclusive agreement with Microsoft to use its browser, Explorer, as its customers' gateway to the worldwide web. That contract ends on 1 January, and AOL is believed to be close to an agreement with Netscape to adopt its Navigator browser, either as an addition to Explorer or as an outright replacement. It was news that caused Microsoft shares to sag on Wall Street. Shares in AOL, by contrast, rocketed 11 per cent. Net-scape's stock by Wednesday's close was up by no less than 34 per cent.

No wonder all the gossip in the industry was of impending doom and disaster for the house Bill Gates built. Writing in the Boston Globe, columnist John Ellis confessed to being confounded at the speed at which the tables appear to be turning on Mr Gates. "Microsoft, long the nation's most admired corporation, has almost overnight become its most reviled," Mr Ellis concluded.

Many forecast that Judge Jackson will find against Microsoft when the Washington trial finally concludes in several weeks. But it is also virtually a foregone conclusion that Microsoft will suffer no immediate effects of such a ruling because it would instantly appeal to the US Supreme Court.

There is one consolation for Mr Gates: he does not appear to have lost the support of the general public. A CNN-USA Today poll, published last week, showed that 56 per cent of Americans retain a favourable opinion of him. That figure compares with 55 per cent last March before the antitrust trial opened. A Business Week/Harris poll found that 32 per cent of those surveyed expressed admiration for Mr Gates, down only from 37 per cent in June. Meanwhile, only 8 per cent said they disliked him, which was unchanged since June.

This may reflect distaste among Americans of anything that smacks of government bullying. Or it may simply mean that nobody is paying much attention to the antitrust trial, which may be of even less interest to Main Street than the Clinton impeachment proceedings have been.