Microsoft attorney Bill Neukom said, "The government's case was groundless at the outset," and now that the merger has been made official it shows the government is "five steps behind the industry.

"The deal shows how the competitive landscape in our industry can change overnight, making government regulation of this high-technology industry completely unnecessary," Neukom added.

John Warden, Microsoft's chief counsel, added the technological power of AOL and Netscape proves that no one has a chokehold on the Internet and that competitors "aren't running scared, they're running hard and fast - against Microsoft.

"The time has come for this case to come to an end," Warden said, noting that he will file a motion with Judge Thomas Penfield Jackson at the end of the government's case, sometime in December, seeking to dismiss the lawsuit.

Microsoft spokesman Mark Murray told The Post the software giant may be willing to explore settlement talks in the meantime - but said it's up to the Justice Department to come up with a proposal.

"We are open to any proposal that the government would bring," Murray said.

"But we are not going to compromise on our fundamental principle that we have a right to improve our products by adding features," Murray said, referring to the government's central complaint that the company is illegally bundling its Internet browser with Windows, the software that powers 92 percent of all personal computers.

Justice Department officials conceded that the bombshell deal between two companies that have co-operated with the Justice Department might make it more difficult to seek dramatic remedial action against Microsoft.

"What is taking place in the industry will have to be taken into account at the remedy stage of the trial," conceded David Boies, the Justice Department's lead trial lawyer in the case.

But Boies vowed to press on, saying he agrees with the testimony of government economist Frederick Warren-Boulton that Netscape may have been forced to allow itself to be swallowed by AOL because of Microsoft's scorched-earth tactics.

"That issue is going to exist regardless of whether one of the companies gets acquired," Boies added.

Boies said he believes now that the trial has begun, it would be "extremely difficult" for Microsoft to settle.

That's because a unique feature of antitrust law mandates that Microsoft would have to sign a consent decree admitting to engaging in anti-competitive business practices as part of any settlement. That consent decree could be used by any company wanting to sue Microsoft, Boies said.

Boies promised his most compelling evidence against Microsoft will be unveiled after the Thanksgiving break when officials of Sun Microsystems testify about how Microsoft tried to destroy its Java software - a "cross-platform" programming language that threatened Microsoft's Windows monopoly.

-- Midknight - 11/25/98