US federal antitrust regulators currently prosecuting software giant Microsoft cannot be too happy about the timing of the America Online-Netscape merger.
In asking US District Court Judge Thomas Penfield Jackson to throw out the Department of Justice's case, Microsoft immediately pointed to the $US4.2 billion deal -- which includes another Microsoft foe, Sun Microsystems, signing a deal with AOL on Java and Netscape's software -- as proof that its dominance can be challenged, practically overnight.
"These people aren't running scared; they're running hard against Microsoft," said John Warden, Microsoft's lead attorney, to Jackson.
Legal analysts concurred, although they stopped short of agreeing with Microsoft that the AOL-Netscape marriage "pulls the rug out from under the government".
"This undercuts the government's case and strikes at the core of [its] attempt to portray serious blockages in the marketplace," said Hillard Sterling, an antitrust expert at Gordon & Glicksen.
According to William Kovacic, an antitrust lawyer at the George Washington University School of Law, the AOL-Netscape deal could mean milder remedies for Microsoft if it does lose its antitrust case.
"Clearly, there are other things already happening that could take away [Microsoft's] monopoly power," Kovacic said.
The government has not provided any specifics about what kind of corrective action it might seek against Microsoft. But David Boies, the Justice Department's lead trial counsel, acknowledged this week that the AOL-Netscape news could influence Jackson's perception of the industry.
"You can't say that [the AOL-Netscape deal] will have no effect," Boies said. "I think it's unlikely to have a significant effect."
However, some analysts agreed that, to a certain degree, it was Microsoft's dominance that drove Netscape into the arms of a bigger company, such as AOL.
That was the gist of testimony last week from a Justice Department witness, former government economist Frederick Warren-Boulton, and from comments by Boies.
"I think Netscape would be able to stand more on its own two feet here if it was not in this spot," said Chris LeTocq, a senior analyst at Dataquest.
AOL's proposed acquisition would open a large distribution channel for Netscape's software, a key issue to the Justice Department's case. In fact, the government has called the Internet "the most important distribution channel".
Despite speculation that AOL would drop Microsoft's Internet Explorer when the contract between the two vendors expires in January, AOL chairman Steve Case said the company will keep Explorer as its default browser.
And because Microsoft is under the antitrust microscope, AOL, Netscape, and Sun have a window of opportunity to make the deal with no serious threat of a competitive move.
"They have all had their days in court, and they have all been throwing rocks at Microsoft," Kovacic said.
"They have crossed a bridge and they have taken a torch to that bridge."
Additionally, federal regulators are not likely to frown on the merger, Sterling and Kovacic agreed.
"The Justice Department has been clamouring for Netscape to gain a competitive alternative," Sterling said.
"To move to block Netscape now would be suicidal for the government's credibility."