Gates defended his company before a Senate panel in March

As far back as 1991, the U.S. Department of Justice and the Microsoft Corp. have sparred over whether the software giant is trying to monopolize the market. But it wasn't until October 1998 that it finally came down to a gloves-off showdown in court.

"Microsoft has an excellent record of innovation," U.S. Attorney General Janet Reno said in May when the Justice Department, 20 states and the District of Columbia sued Microsoft for violating anti-trust laws. "But we want to make sure that the field is open ... to the next Microsoft, the next great innovator which can help improve our lives and our economy if it is given the opportunity."

"This is a step backward for America, for consumers and for the PC industry that is leading our nation's economy into the 21st century," replied Microsoft CEO Bill Gates. "How ironic that in the United States, where freedom and innovation are core values, these regulators are trying to punish an American company that has worked hard and successfully to deliver on these values."

Microsoft Vice Chairman Steve Ballmer put it more succinctly: "To heck with Janet Reno."

The case against Microsoft is that it has systematically used its market power to sign contracts -- with computer makers, Internet service providers and other companies providing information and entertainment for the Web -- limiting the ability of Microsoft's competition to sell Web browser software.

One document submitted by the plaintiffs is a memo written by a Microsoft manager in 1997 that reads, "It seems clear that it will be very hard to increase browser share on the merits of (Microsoft's Internet Explorer browser) alone. It will be more important to leverage the (operating system) asset to make people use (Explorer) instead of (Netscape) Navigator."

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Another manager wrote in another memo that the company could best increase its share of the browser market by "tying tight to Windows," the Microsoft operating system that dominates the personal computer market.

The court case, which began in October, proceeded slowly as Microsoft's attorneys sought, in the words of a company spokesman, to "clean off the mud that has been thrown on Microsoft."

Nevertheless, there were indications that the case was tilting in Justice's favor.

After Gates appeared as a witness and engaged in some Clintonesque evasions, Judge Thomas Penfield Jackson said, "I think it's evident to every spectator that Mr. Gates has not been particularly responsive."

Speculation abounded as to what penalties Microsoft might suffer if found guilty. They ranged from splitting the company in two, to breaking it up into five "Baby Bills," to a list of things Microsoft would not be allowed to do in the future. There was even talk that it might be saddled with the kind of judicial oversight exercised over AT&T when it was broken up.

The only certainty as the year closed, however, was that the bitterly contested case will not die soon. No matter who wins, the loser is almost certain to appeal.