South Carolina has withdrawn from the antitrust lawsuit filed against Microsoft last May by a group of US states and the US Department of Justice, citing the planned merger of America Online and Netscape Communications and their partnership with Sun Microsystems as an example that "competition is alive and well."
South Carolina Attorney General Charlie Condon released a statement that said, in part, "Recent events have proven that the Internet is a segment of our economy where innovation is thriving. The merger of America Online with Netscape and the alliance by those two companies with Sun Microsystems proves that the forces of competition are working. Further government intervention or regulation is unnecessary and, in my judgment, unwise." South Carolina was one of 20 states and the District of Columbia that filed an antitrust lawsuit against Microsoft in parallel to a lawsuit filed by the DOJ in May. The judge joined the two cases for trial, which is now in its eighth week.
Microsoft itself has argued inside and outside court that the $US4.2 billion AOL-Netscape merger and related alliance with Sun, all announced Nov. 24, undermines the U.S. government's case.
The partnership between the trio "makes the government's lawsuit even more irrelevant," Microsoft said today in a statement released at a press briefing in Washington, D.C. "The merger of two of the leading Internet companies, and the associated alliance with Sun, proves that the competitive landscape of the high-tech industry can change dramatically overnight. It shows that, in a dynamic industry such as software, the government will always be five steps behind the pace of change."
Condon said he 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." He said he was also influenced by Nobel prize-winning economist Milton Friedman who has said that expanding government control over the technology industry would lead to fewer innovations, higher prices and lower profits.
The US government's case has focused on Internet competitors, not consumers, with witnesses being either Microsoft rivals or paid government experts. "Consumers have not taken a leading role in this action," he said in his statement. "That's because there are no monopolies on the Internet."
The information technology industry is one of the country's "great economic success stories," Condon continued. "It has achieved its current rate of growth and prosperity without the aid or the interference of government. Competition is alive and well. Surely the Netscape-AOL-Sun deal has proven that beyond all doubt. ... Innovation should be left to entrepreneurs, not to government bureaucrats or the courts."
Spokespeople for the DOJ and the New York Attorney General's office asserted that the move by South Carolina would not affect their case.
"This will have zero impact on our case," said DOJ spokeswoman Gina Talamona, adding that despite Microsoft's claims, the AOL-Netscape-Sun alliance "wont remove the obstacles Microsoft has set forth to companies challenging the firm's monopoly."
Marc Wurzel, a spokesman for New York Attorney General Dennis Vacco, whose state has been the lead state on the case, agreed, calling the South Carolina announcement a "non-event, an inconsequential development" and saying that South Carolina did not contribute greatly to the case.
"We believe, as we are the lead state, that this will have no impact on the case," he said. "It is not uncommon in multistate efforts like this that states sign on and sign off of lawsuits with great regularity."
A spokesman for Iowa Attorney General Tom Miller said the case was going "full speed ahead." The AOL-Netscape-Sun deal "does not excuse Microsoft's past conduct," said spokesman Bob Brammer in Iowa, adding that "the merger's affect on competition is purely speculative."
A spokeswoman in California's attorney general's office said the AOL-Netscape-Sun agreement "doesn't take away from the fact that Microsoft has violated antitrust laws in the past." California, meanwhile, is still pursuing the lawsuit; "nothing's changed," said spokeswoman Staci Turner.
A Microsoft spokesman said the company was happy to hear about Condon's decision.
"We are pleased with the news and hope other states will follow the lead of South Carolina," said Tom Pilla.
Spokespeople at AOL, Netscape and Sun could not immediately be reached for comment.