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For once, Microsoft's (MSFT) legal swagger may be justified. Microsoft's stock rallied a trading day in advance of its Monday and Tuesday U.S. Circuit Court of Appeals hearing, two days that many feel will help Mister Softee escape from the dramatic breakup ordered by antitrust trial Judge Thomas Penfield Jackson.

Microsoft stepped up $1.56, or 2.8%, to $56.25, in anticipation during trading Friday. In conference calls across Wall Street, analysts briefed investors on the conservative seven judges of the appellate court, the unlikelihood of the

U.S. Supreme Court

holding up extreme penalties, and the less enthusiastic attitudes of the

Bush administration

toward the trial.

The federal appeals court is unlikely to overturn Jackson's finding that Microsoft was a predatory monopoly, without strong evidence that he was wrong. The court likely will focus on whether the trial judge's orders concerning Microsoft fit the law. If the appeals court disagrees, it could make its own ruling or send the case to a lower court for a rehearing.

The Supreme Court denied a direct

appeal in September 2000 made by government antitrust attorneys, but either side can take the appellate court ruling to the high court. Conventional wisdom dictates that Microsoft would fare well in front of a Supreme Court panel dominated by conservatives. On a call with

Deutsche Banc

analyst Chris Mortenson, antitrust expert Keith Sharfman of

Rutgers University

described the Bush administration as less "in the pocket" than the



Department of Justice

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, alluding to the influence of Microsoft rivals such as

Sun Microsystems



He added that the 19 states currently pursuing antitrust action against Microsoft likely would drop the case if the Justice Department were to settle with Microsoft, rather than pressing ahead individually. (Before the election,

reported that states were vowing to stand pat.) In a morning research note, analyst Don Young of

UBS Warburg

said there is a "very good chance" that the Supreme Court would affirm a rejection of the tougher Jackson breakup strategy, should it be appealed. (Neither UBS Warburg nor Deutsche Banc has done recent banking for Microsoft).

However, he couched that with a warning to investors that the court could "agree to the modest conduct remedies: publishing the Windows price list; banning incentives not to promote competitors" and the like. These more conservative measures likely would gain support of the Supreme Court, he said. The setup of the two-day, seven-hour hearing alone hints that the court could be skeptical of Jackson's opinions, with 30 minutes allotted to each side for Tuesday arguments regarding the judge's conduct and statements in and out of the court.

Microsoft probably will take that time to highlight statements Jackson made in interviews following the antitrust trial -- that

Bill Gates

should be forced to write a book report on


-- which could be interpreted as showing a bias against Microsoft. Monday's topics of discussion hinge on whether Microsoft abused its monopoly power (75 minutes each) and whether Microsoft illegally bundled the Internet Explorer Web browser with the Windows operating system (45 minutes each).

Those two discussions should set the tone for Tuesday's discussions of Jackson's ruling, the proposal to break up Microsoft (the "remedies" portion of Jackson's ruling) and the aforementioned conduct of Jackson. Therefore, Monday sets the tone for Tuesday: if the judges back off Jackson's stance on Microsoft's transgressions Monday, it can be assumed they'll back off when it comes to punishment, too. Investors still have a few months to wait before getting an appellate court ruling. While the court can decide on its own timeline, estimates for a ruling run from as early as mid-May to later in July.