With all the hubbub last week regarding Microsoft's first layoffs and dramatically lower sales, the company's legal warriors were all but forgotten. So while facing the barbarians of Wall Street last Thursday, Microsoft was also struggling to cast out one of its biggest legal demons.

In fact, as Microsoft CEO Steve Ballmer was revealing how far the industry's golden child had slipped over the past quarter, his attorneys were across Lake Washington in downtown Seattle arguing to a judge that one of its stickiest legal cases should be dismissed. Goodbye. Gone. Please?

Nothing is ever that easy.

That case would be Microsoft's (NASDAQ: MSFT) so-called "Vista Capable" lawsuit, which is nearing a critical point – the case is scheduled to go to trial on April 13.

The stakes are high. The plaintiffs argue that the company should owe members of the class action as much as $8.5 billion – the cost to upgrade their PCs to run a premium version of Vista.

Not surprisingly, Microsoft strongly disagrees.

Vista Culpable?

On Thursday, January 22, Judge Marsha Pechman held a hearing for both sides to present oral arguments on the reasoning both for and against continuing the lawsuit. Pechman has had few hearings in the two-year-old case but this was a pivotal one. It will decide whether the case goes to trial or not, barring an out-of-court settlement.

Microsoft's legal team argued that the case does not rise to the level of a class action and that the suit itself should not go forward – with or without class action status.

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The company tried the same maneuver last year, unsuccessfully, even going as far as the Ninth District Court of Appeals only to be turned back. That said, it is typical for civil defendants to try to get such cases tossed prior to actually going to trial.

Originally filed in early 2007, the suit over whether Microsoft tricked consumers into buying PCs incapable of running all but the least capable version of Vista under the banner of Microsoft's "Vista Capable" logo program later escalated into a class action.

Prior to shipment of Windows Vista, Microsoft had two levels of PC hardware requirements. The highest one – dubbed "Vista Premium Ready" – meant that the PC was able to run any version of Vista. Meanwhile, though, the lower-cost Vista Capable machines would only be able to run Vista Home Basic, which lacks the Aero Glass user interface.

Windows Vista was behind schedule and, ultimately, would not be available to consumers until January 30, 2007. Therefore, new PCs sold during the 2006 holiday season came with Windows XP pre-installed, and many of them had the "Vista Capable" sticker on the PC. The sticker was meant to indicate that the machine could run Vista when it was available – but only Vista Home Basic.

To argue otherwise would be to demand more than what the Vista Capable program promised, Microsoft's attorneys said.

Next page: Money and motions.

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