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News Corp. unit claims AOL acting monopolistic
September 30, 1997
Web posted at: 1:04 a.m. EDT (0504 GMT)SAN FRANCISCO (Reuters) -- Kesmai Corp., a subsidiary of Rupert Murdoch's News Corp. and a developer of multiplayer online games, said it filed a 13-count lawsuit against America Online Inc. Monday.
The suit alleges monopolistic business practices and anti-competitive behavior, among other things, Kesmai said.
The company, based in Charlottesville, Virginia, said it had filed suit in U.S. District Court in Alexandria, Virginia. The suit alleges that AOL, by favoring its own gaming division on its service, is leveraging its monopoly in the online services business to become a leader in online gaming.
The suit also seeks to block AOL's proposed merger with CompuServe Corp. as part of a three-way deal with WorldCom Inc. Kesmai said that with the acquisition of CompuServe, AOL would control 79 percent of the online marketplace, increasing its already dominant position.
Chris Holden, the chief executive of Kesmai, said the company believed the U.S. Federal Trade Commission or the Justice Department would be interested in its case.
"We believe that the situation is bound to come under scrutiny from those agencies," Holden said. He said Kesmai's lawyers had contacted the U.S. government but he did not know of the reaction or outcome.
"They dominate the market, they are a monopoly, and now they are abusing it," Holden said.
Kesmai said that since AOL bought the Imagination Network, it had positioned the multiplayer gaming service, now called WorldPlay, as the only game brand on the AOL gaming area.
Multiplayer games enable many people to play video games online together, from various locations around the world.
"We had built the only profitable business in this space. We had a terrific relationship with AOL," Holden said. "They took the WorldPlay brand and redesigned it. When you log on, it's WorldPlay plastered on every place. We have no branding. WorldPlay controls the promotional buttons and icons."
"We have tried in every way fashionable to reach some sort of agreement," Holden said. "We just want to compete fairly. We want parity." The company said that while it marketed its online games on all the major Internet access providers and other online services, such as Prodigy and CompuServe Corp., the biggest sector of users came from AOL.
"The reality is that all the money -- over 90 percent -- comes from AOL, even though we have other distribution pathways," Holden said. "The reality is that AOL is cyberspace."
An America Online spokeswoman said the lawsuit had "no merit" and represented nothing more than a contract dispute.
"This is News Corp. suing in an effort to get in litigation what they couldn't get through negotiation," the AOL spokeswoman said. "We have a contract with Kesmai for carriage of some of their games. They are seeking to improve their position on AOL, and they don't want to pay for it."
The lawsuit also accuses AOL of predatory behavior, fraud, trademark dilution and defamation. As an example of AOL's supposedly predatory behavior, Holden cited its surcharge of $1.99 per hour for gamers, in addition to its $19.95 monthly flat rate for unlimited service.
"We are not surprised by the turn of events, especially with them trying to buy CompuServe," said a spokeswoman for MetaCreations Corp., a developer of online gaming software based in Carpinteria, California.
Last month MetaCreations said AOL had posted a notice on the MetaSquares area abruptly announcing the termination of its games. "We are not pleased with the outcome, with what happened with us," the spokeswoman said. "We are aware of the company filing a suit, we are not part of this suit, and we don't discuss our legal plans ahead of time."
Copyright 1997 Reuters Limited. All rights reserved.
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