The states fought back by showing emails that appeared to contradict Mr Gates' testimony.

"The term IE can be used in different contexts to mean different (kinds) of code... There is no known definition where it is clear you know (exactly) what somebody is talking about

Bill Gates Microsoft chairman

In written testimony, Mr Gates told the court that the company might have to withdraw the Windows operating system found on nine in every ten desktop computers in the world if the states get their way.

And one key request according to Microsoft - that the Internet Explorer browser be removed - would destroy Windows altogether, he told Judge Colleen Kotar-Kotelly.

Mr Gates told the judge he did not know how to define the IE browser.

"The term IE can be used in different contexts to mean different (kinds) of code," he said. "There is no known definition... where it is clear you know (exactly) what somebody is talking about."

The states want a version of Windows that can be customised by computer makers and rival software designers.

Allowing Office to be rendered very well by other people's browsers is one of the most destructive things we can do to [Microsoft]

Memo from Bill Gates Microsoft chairman

Mr Gates said this "would undermine all three elements of Microsoft's success, causing great damage to Microsoft, other companies that build upon Microsoft's products, and the businesses and consumers that use PC software".

Disputes

During the hearing, Mr Gates insisted that Microsoft did not block other companies' ability to work with Windows, and said it did everything it could to disclose source code - the nuts and bolts of software - to its rivals.

But laywers for the states opposing the settlement reached between Microsoft and the Justice Department challenged this.

In an echo of previous trials, where old e-mails were found which directly contradicted Microsoft employees' testimony, antitrust expert Steve Kuney introduced an internal memo.

In the memo, Mr Gates told employees to stop working on ways of making sure that documents from the Office suite - Microsoft's "killer app" - were compatible with rival web browsers.

"Allowing Office to be rendered very well by other people's browsers is one of the most destructive things we can do to the company," he wrote.

States still pursuing Microsoft

California Connecticut Florida Iowa Kansas Massachusetts Minnesota Utah West Virginia District of Columbia

Mr Gates insisted that was simply a matter of stopping work which wasn't achieving its goals.

In person, this time

Mr Gates was making his first appearance as a witness since Microsoft was taken to court four years ago, accused of trying to stifle competition.

Microsoft has already been found guilty of exploiting its monopoly of the operating system market to damage its competitors.

The current hearing is simply to judge what penalty the company should face.

In the original Microsoft trial, Mr Gates gave evidence only on videotape.

Some legal experts said his failure to give evidence in person harmed the company's case.

Last year the US JusticeDepartment and nine states reached a settlement with Microsoft.

Pre-emptive action

But nine other US states and the district of Columbia chose to pursue the case, arguing tougher penalties were needed to prevent the company from continuing to abuse its monopoly in the future.

Key dates of the legal battle

1995 Court orders Microsoft to scrap terms requiring PC makers to install Internet Explorer 1997 Justice Department claims Microsoft is violating earlier court order 1997 Microsoft ordered to supply Windows 95 without a browser 1998 US attorney general and 20 US states launch anti-trust lawsuits April 2000 Microsoft found guilty of anti-competitive behaviour June 2000 Judge orders Microsoft break-up February 2001 Appeals court hearing begins June 2001 Appeals court sets aside break-up ruling

They say the court should take pre-emptive action to restrain Microsoft's potential domination of new technologies rather than merely offer redress for the company's past misdeeds.

Microsoft's lawyers argue the states' demands are excessive, saying the so-called remedies ought to be confined to issues on which Microsoft has been found to be at fault.

Bias

Mr Gates might have to spend two days in the witness box, being questioned by lawyers.

The judge in the original trial ruled that Microsoft had illegally stifled competition and he ordered that the company should be broken up.

An appeal court threw out that judge's remedies, saying he might have given the appearance of bias, and appointed Ms Kollar-Kotelly to determine new penalties.

Ms Kollar-Kotelly is also considering whether to accept the out-of-court settlement.