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Last summer a federal court ruled that Microsoft had illegally attempted to exert a monopoly over desktop computer systems by excluding rival products such as Netscape's Web browser and email client and Sun's Java programming language. Though a settlement was reached, nine states rejected the deal, which would force Microsoft to accept the installation of third-party software on PCs and restrict the extent to which Microsoft could tie-up agreements with PC manufacturers to exclude such third-party products.

The nine states are calling for Microsoft to modify Windows so that its own applications - such as Internet Explorer - are not an integral part of the OS. However Microsoft is suggesting that it cannot do this and to impose such sanctions would restrict their ability to develop the platform.

In a recent deposition to lawyers, Microsoft CEO Steve Ballmer says the proposed settlement represents 'a very reasonable way for both of us to try to move forward'. However if the nine states succeed in altering the terms, the effect will be to 'take away' the value that the consumer gets from Windows.

'One of the key reasons why Windows has value to end users today is they know that if they get

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a version of Windows, [it] has a certain kind of user interface, they can ask their friends for help, it runs a certain set of applications, it has a certain set of hardware devices that it supports.'

Microsoft wants a settlement that is neither punitive - despite the fact that the company has been found guilt of illegal practices - nor help the company's competitors.

Lawyers for the nine states countered that Microsoft already has a modified version of Windows on the market - Windows CE. When questioned about this Ballmer proved elusive, saying 'I'm not an expert'.

Underlying all of Microsoft's objections is the suspicion that the company believes that in a fair fight its products may not prove competitive. As Microsoft's lawyers put it: 'The reason the non-settlings states have proposed relief that is significantly broader... is no secret. They seek to advance the commercial interests of Microsoft's competitors.'

But surely, if the world's biggest software company's products are so good, they've nothing to worry about from a bit of competition. As Ballmer said, everyday he likes to tell his engineers, 'to work hard everyday on the R&D, the brilliant ideas, the intellectual property, the quality, the security...and to justify [Windows'] positive price.'

You can see and hear Microsoft's own edited highlight of Ballmer's deposition here and the whole event here.