Microsoft Trial -- South Carolina Pulls Out -- Aol-Netscape Deal Makes Case Moot, Prosecutor Says

South Carolina's attorney general broke ranks with 19 other states today and ended the state's pursuit of antitrust claims against Microsoft.

Attorney General Charlie Condon said America Online's agreement last month to buy Netscape Communications and their partnership with Sun Microsystems proved that government intervention in Internet business is unnecessary.

"I can no longer justify our continued involvement or the expenditure of state resources on a trial that has been made moot by the actions of the competitive marketplace," the Republican attorney general said in a statement.

The core of the suit against Microsoft - pursued now by the federal government and 19 states - is that the Redmond software giant illegally used its monopoly of the computer-operating-system business to seize Internet-browser market share. The company that has lost most by Microsoft's actions is Netscape.

Condon's arguments essentially repeat those made by Microsoft after the AOL-Netscape deal was announced - that the browser market must be healthy if AOL is willing to pay $4.2 billion for Netscape. Microsoft general counsel William Neukom said he was pleased with Condon's decision and hoped "that the other plaintiff states will pause and reconsider the wisdom of pursuing this litigation."

Microsoft said it has not been a political contributor to Condon, though it has given money to the South Carolina Republican Party.

Condon's decision took the attorneys general for the other 19 states pursuing the litigation by surprise. At least one downplayed the impact.

"South Carolina contributed little to nothing to the states' effort, and we are moving ahead in the presentation of our witnesses and our presentation at the trial," said Marc Wurzel, a spokesman for New York Attorney General Dennis Vacco. "I think this will have as much impact on the case as the announcement of Mr. and Mrs. Gates (last week) that they are having another child."

Separately, Microsoft attorneys filed a motion seeking to depose executives of Netscape, America Online and Sun Microsystems to ask questions about the recent deal. They also have asked to question investment bankers who handled the deal. Microsoft wants to know the effect the deal will have on the government's allegations.

Meanwhile, a government witness has told a federal court that Microsoft easily could have designed Windows 98 without the Internet Explorer Web browser - and doing so might actually have made the operating system run more efficiently.

University of Pennsylvania computer scientist David Farber, who is scheduled to be cross-examined by Microsoft attorneys tomorrow, testified in writing that Microsoft is misleading in its claims that it is more efficient to put the software to browse the Internet into Windows 98 than to sell the browser separately.

"While the combination may offer certain efficiencies, these same efficiencies can be achieved without bundling of the Web-browser software with what Microsoft calls its Windows operating system," Farber said.

"This is because there are no technical barriers that prevent Microsoft from developing and selling its Windows operating system as a stand-alone product separate from its browser software."

Microsoft has argued in pretrial documents that certain Windows functions use the same software code as the browser.

Microsoft contends this allows the computer user to go "seamlessly between files and folders stored on various local and network devices - as well as on the Internet."

And, Microsoft argues, integrating the browser into the operating system was done to meet the demand of consumers and to compete with IBM and Apple Computer, both of which include browsers with their operating systems.

Such arguments are key to Microsoft's defense because the U.S. District Court of Appeals for the District of Columbia ruled in an earlier Justice Department lawsuit that the browser and Windows 95 were genuinely combined and such combinations are legal if there is a plausible reason.

However, executives of IBM and Apple testifying as witnesses in the government's case said their browsers were designed so they could be easily removed - or not included with every version of their operating systems.

And, they testified, each of the functions described by Microsoft could easily be attained through other designs.

Farber, the government's expert witness, said the Microsoft browser could have been written so it could be removed more easily from the operating system.

His key point is that Microsoft already has bundled too many applications into the operating system that are not central to what an operating system should do.

Unnecessary applications, such as browser software, can add redundant code, degrade the performance of the operating system and increase the risk of software bugs, Farber said.

Jay Greene's phone message number is 206-464-3287. His e-mail address is: jgreene@seattletimes.com

James Grimaldi's phone message number is 202-662-7455. His e-mail address is: jgrimaldi@seattletimes.com