Dramatic legal salvoes launched the antitrust suit brought by the US government against software company Microsoft in a case which could change the future of the defining company of the information age.

There are only three outcomes to the case: the government loses and business continues as usual; Microsoft loses and the government bars it from using the offending practices which gave rise to the suit; or Microsoft loses and the company is broken into separate operating system and software application companies.

On Monday, the first arguments were heard in a case which promises to be extraordinarily complex and obtuse. The government was first up, and launched a lacerating attack on the company and on Mr Gates himself. Mr Gates, said the government's lawyer Mr David Boies, deliberately was misleading in his taped testimony, given under oath.

Mr Boies accused Mr Gates of being at the centre of numerous illegal deals with other software and hardware companies and said Microsoft had coerced many of them into complying with its demands. Mr Boies supported his contentions with extracts from Mr Gates taped testimony, and with snippets of memos, emails and internal documents.

In its own opening argument on Tuesday, Microsoft responded witheringly that the government was deliberately misreading its own evidence, taking comments out of context. "The government's case is long on rhetoric and short on substance. The effort to demonise Bill Gates in the opening statement is emblematic of this approach," claimed Microsoft's head lawyer Mr John Warden.

In coming weeks, 12 witnesses apiece will take the stands for each side, and then be cross-examined. On the list are some of the leading technologists and chief executives of the technology world. The trial is expected to last around 10 weeks, but appeals on the final decision are expected to the Supreme Court.

Months of sniping public exchanges between the two opponents, press speculation, and relentless attempts by the US government and Microsoft to gain the upper hand in spin control have turned the trial into a international event. People queued for hours to obtain gallery seats.

Microsoft has repeatedly attempted to delay the trial, and was still putting forward formal requests last week. But their arguments failed to sway the judge and the case began as scheduled on Monday morning.

Both prosecution and defence arguments will centre on interpretations of labyrinthine US antitrust laws created in the early part of this century, and will involve attempts to define the precise nature of computer operating systems, software applications.

At stake is not simply one company's competitive practices, but an attempt to define the constantly shifting boundaries of the most rapidly evolving new industry: technology. In a viciously competitive market where a product's life cycle can be as short as six months and breakthrough technologies appear monthly, how can governments define and regulate it?

The issue around which the trial is based is a practice known as "bundling", whereby one product is offered together with another. In this case, the product in question is a piece of software known as a browser, which enables computer users to navigate the World Wide Web and see it as pictures, video, and text. Microsoft began bundling its browser, Internet Explorer, with its operating system, Windows 95.

But Microsoft's operating system resides on an estimated 90 per cent of computers. Once Microsoft began offering Internet Explorer with Windows its browser market share skyrocketed from an initial 3 per cent to somewhere around 45 per cent over three years.

Its competitor, Netscape Corporation, had previously dominated the browser market with 80 per cent share in 1995. Netscape is now the alleged primary victim of Microsoft's actions in the Department of Justice's antitrust case.

The current case stems from Microsoft's alleged violations of an agreement reached with the US government three years ago. On the tail of an earlier antitrust probe, Microsoft signed a consent decree which became effective in 1995 and prohibits it from using its dominance in one market to gain control of another, thus stifling open competition.

Microsoft has maintained that its browser is not actually a separate product but is closely integrated with Windows 95. It is unquestionably even more closely conjoined to Windows 98, the update of Windows 95 which Microsoft released this summer.

But US District Judge Thomas Penfield Jackson, who was assigned the Microsoft case, decided last autumn that Internet Explorer did indeed seem to be illegally bundled - or "tied" - with Windows 95 and ordered that they be separated while the government considered whether there was sufficient evidence to bring an antitrust suit against the software giant.

Microsoft appealed and refused to unbundle the products. Judge Jackson slapped contempt charges of $1 million a day on Microsoft while they refused to comply, and opened hearings to consider the bundling question.

Judge Jackson decided last January that Internet Explorer was a separate product and must be unbundled. Microsoft, however, won an appeal in May which also allowed it to release Windows 98 on time, with Internet Explorer bundled.

At the time, press reports wavered on the significance of an antitrust trial. Many analysts felt that the government's case was fatally weakened. But over the summer, government lawyers joined with 20 state attorneys general to gather evidence that Microsoft had allegedly been involved in coercive deals and other illegal moves to crush competition.

While Microsoft claims that the government has now illegally moved beyond its original antitrust charges, the Department of Justice insists that its evidence will prove a "pattern of behaviour" essential to defending its main charge.

Those supporting charges were outlined by Mr Boies on Monday. Microsoft, he alleged, had pressured chipmaker Intel to shun working with Netscape to improve Netscape Navigator's performance. Computer maker Dell apparently was offered "incentives" not to include Navigator with its computer systems.

Computer maker Compaq was forced not to show the Netscape icon (company symbol) on the desktop (or main screen) of the computers they shipped to customers.

Internet service America Online was strong-armed into cutting a deal with Microsoft to only offer Internet Explorer as the AOL Web browser. Apple Computer and multimedia software company RealNetworks are also alleged victims. Most damningly, the Department of Justice accuses Microsoft of trying to initially make a deal with Netscape to divide up the browser market, a deal Netscape says it rejected.

The government will have a difficult case to prove - not just whether such deals took place, but whether they truly constitute a violation of antitrust laws. However, even if the government were to lose, Microsoft's reputation may be savaged and public mistrust could offer opportunities to a new, young company to shoot up in Microsoft's place, much as Microsoft did six years after IBM was severely restrained and restructured after losing a 1969 antitrust suit.