The justice department, however, said it plans to move forward with the case along with the remaining 19 states that jointly filed suit against the software giant.

State attorney general Charlie Condon said that the recent $4.2-billion merger proposal between America Online Inc. (AOL) and Netscape Communications Corp. (NSCP) offered evidence that competition is thriving in the computer industry, an argument previously made by Microsoft lawyers and officials.

"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," Condon, a Republican, said in a statement. "The Internet economy is the place where the winners and the losers of this competition will rightfully be decided."

A justice department spokeswoman said South Carolina'swithdrawal would have "zero impact on our case."

In May, the justice department and 20 states sued Microsoft for illegally maintaining a monopoly with its Windows operating system and working to extend that monopoly into Internet software.

Microsoft and other critics of the suit have maintained the government's purpose is to protect the interests of Microsoft's competitors, particularly Netscape. Condon echoed that sentiment in his statement while criticizing the way the justice department has handled the case.