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investors, listen up. The


narrow confirmation of

John Ashcroft

as attorney general last week means more to you than you may realize. As head of the

Justice Department

, Ashcroft will have the final word on how to proceed with the government's case against Microsoft.

Last April, the Justice Department and 19 states

scored a victory against Microsoft when

U.S. District Court

Judge Thomas Penfield Jackson ruled that Microsoft had abused its dominance of the personal computer operating systems market. Jackson

then ordered the company split into two parts. Microsoft is appealing the decision.

Later this month, the

U.S. Court of Appeals

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in Washington, will begin listening to oral arguments in the appeal. Friday, Microsoft and the Justice Department proposed that each side argue for two hours and 15 minutes and suggested a schedule of topics. The court is expected to rule on the appeal early this summer.

Republicans generally disapprove of regulating business practices, though it's unclear whether Ashcroft will aggressively try to hamper the DOJ's case. So far, he's skillfully soft-shoed around questions on how he'll handle it.

Honoring the Process

"I will look very carefully at this case, relying on the expertise of the department in deciding strategy for the case. And I'm not in a position to assure you that I would do anything other than that, at this time," he said during his Senate confirmation hearings in response to

Sen. Arlen Specter's

(R, Pa.) question of whether he would "honor the court process."

Microsoft contends it's not looking for help. "We are not asking the government to intervene in any way," says spokesman Jim Cullinan. "We are confident that we will win in the court of appeals. "

But there's little doubt that

Bill Gates

and Co. would like to get rid of the case any way possible. The legal battle has cost the company executives' attention, cash and some investor confidence.

"In a way, the government has already gotten its remedy. The case has been an invisible drag on the company's resources," says William Kovacic, a law professor at

George Washington University

in Washington. "It's less aggressive in responding to competitors and had a hard time recruiting and retaining good people."


Here are a few scenarios for how this antitrust soap opera could proceed.

Ashcroft could take a hands-off policy, at least temporarily. Antitrust experts generally agree that the administration is unlikely to abandon or try to settle the case prior to an appeals court ruling. The new attorney general and his boss,

President Bush

, are both in politically precarious spots because neither entered his office with a clear mandate.

"If they did anything abrupt, it would be highly dangerous to them. Critics would call them stooges

of the right at a time when they don't have any political capital to draw on," says Kovacic.

In addition, the 19 state governments, the co-plaintiffs in the case, have publicly

pledged to pursue the case "until the end." That means that even if the DOJ tries to ditch, the state governments still would see their case through the appellate court.

The appellate court could uphold Judge Jackson's original ruling without any revisions. Microsoft would then try to appeal to the

Supreme Court


Finding Fault

The appellate court could find fault with some or all of the original ruling. Experts say this is likely. At that point, the court could either suggest its own remedy or send the case back to the district court.

Microsoft is defending itself as aggressively as ever. Earlier this week, the software giant filed a brief

thrashing Jackson's ruling.

And, according to Kovacic, the court may find procedural flaws in the original case due to Judge Jackson's "breathtakingly bad judgment" by trashing Gates to the press. In Ken Auletta's recently published book,

World War 3.0, Microsoft and Its Enemies

, Jackson compares Gates to gangland murderers whom he convicted in a prior case -- both refused to show any contrition for their actions.

"He essentially confessed that he wasn't evenhanded in delivering his judgment so they may not have to respect his ruling," explains Kovacic.

The judges could find other procedural flaws in the original case, too. "For instance, the district court had only one day of hearings to decide what remedy to take," says Steve Holtzman, a former Justice Department trial attorney.

Furthermore, "the ruling that Microsoft violated the law was so sweeping, that if the court knocks out even some liability, legally a breakup will be out of the question," says Kovacic. "For example, the government said that Microsoft broke the law by inviting


to collude with them to dominate the Web browser market. The appeals court could conclude that its specific actions weren't illegal."


If the appeals court finds fault with the original ruling, Ashcroft would have a more politically palatable opportunity to step in and either try to settle the case with Microsoft or dismiss it. Dismissing the case would still be an aggressive move, but Ashcroft may have more political leverage to do so by then. At that point, the state governments could be more likely to join the DOJ in a settlement because their chances of winning would already be reduced.

Settling would mean that the company wouldn't be divided but that Microsoft would voluntarily curtail some behavior deemed predatory. For example, the company could let PC makers have their own icons appear on screens when a user boots up, rather than Windows branding.

"I think settlement is a very likely option. I doubt this administration would want to aggressively maim Microsoft as the last one did," says Howard Love, money manager of

Love Capital Partners

. (He's long Microsoft.)

So Gates may have more restless sleep until there's a resolution, but his company may have the most damaging effects of the antitrust battle behind it.