On his third and final day under cross-examination during his company's antitrust remedy hearings, Microsoft Chairman and Chief Software Architect Bill Gates was confronted by what is, perhaps, the nonsettling states' and District of Columbia's most compelling bit of evidence: a modular, component-based Windows XP version that Microsoft made and yet contends is impossible to make. The XP version--dubbed Windows XP Embedded--is designed for use in connected devices such as cash registers, ATM machines, and Web pads, but embedded developers could theoretically build it for and install it on a typical PC. The differences between XP Embedded and the desktop XP versions--XP Home Edition and XP Professional Edition--are fairly technical, however. Microsoft says that XP Embedded is designed as a built-to-order OS for a specific device and never changes, whereas desktop Windows versions change when manufacturers install applications and updates. However, the very existence of XP Embedded makes Microsoft's argument against the viability of a modular Windows somewhat specious because Microsoft created the product by modularizing the desktop XP code base, a process that Microsoft contends is either impossible or would render the OS unusable.

During cross-examination yesterday, a lawyer for the nonsettling states confronted Gates with this contradiction. "So, you can build an \[OS\] that can run on a PC and support virtually all the applications currently supported by a PC running XP at home?" attorney Steven Kuney asked Gates.

"Yes and no," Gates replied. "You wouldn't be able to go and take an application and install it and have it run \[after the fact\]." In his written deposition, Gates said that XP Embedded isn't a general-purpose OS but rather is designed to run on single-purpose devices. Kuney asked him about this statement, wondering whether a developer could build an XP Embedded version for a PC that ran Microsoft Office applications.

"Technically, you could," Gates admitted. The only missing piece, interestingly, is the application-installer routine from the XP desktop versions, a fairly trivial piece of code compared to the rest of the OS.

XP Embedded might well be the linchpin of the nonsettling states' case against Microsoft. The company has repeatedly complained that a modularized Windows version is impossible because of interdependencies between components, such as the Windows Media Player (WMP) and Microsoft Internet Explorer (IE), and Windows. Yet Microsoft designed XP Embedded so that WMP and IE are optional: Developers can build versions of XP Embedded that don't include either component, or they can add one or both components. The states are asking that Microsoft also give consumers and PC makers this choice. At one point, Kuney showed the judge an XP Embedded licensing restriction that forbids developers from creating versions of the OS that run on PCs, despite the fact that they could easily create such a product otherwise.

Despite the controversial topic and Kuney's often-successful attempts to show that Gates' "Chicken Little" defense is exaggerated or hyperbolic, Gates remained calm on his third day in court. As the day ended, he made a short statement outside the courthouse. "I'm glad I had an opportunity to come and share my story with the court," Gates told a throng of reporters. "Microsoft has been working hard to resolve the issues in this case."