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News Corp. game unit sues AOL

Online gamer Kesmai files suit against America Online, charging "flagrant violation of federal antitrust laws" in the online gaming market.

Kesmai, a subsidiary of Rupert Murdoch's News Corporation, filed suit today against America Online (AOL), charging "flagrant violation of federal antitrust laws" in the online gaming market.

The lawsuit, which was filed in U.S. District Court in Virginia and will be discussed tomorrow at a press conference, comes amid AOL's pending buyout of CompuServe, a deal that already is being scrutinized by the Justice Department for possible anticompetitive effects.

It also is the latest controversy to erupt since AOL's switch this summer to pay-for-play gaming, one of its first so-called premium services since it launched a flat-rate pricing plan last year. The online service is depending on the extra revenues to be profitable.

Kesmai's suit involves AOL's practices in online gaming. AOL recently bought ImagiNation Network and relaunched it in June under the name WorldPlay. That action, Kesmai alleges, gave WorldPlay "'anchor tenant' status and control of the basic management, programming, and promotional functions on the AOL games channel.'"

As a result, Kesmai was forced to be "subsumed" under its competitor's brand, namely WorldPlay's, or leave AOL altogether, according to Kesmai chief executive Chris Holden. He contended that AOL further limits consumer choice because its technology blocks many subscribers from playing games on the Web.

"The reality is [AOL] has leveraged its monopolistic position to quell competition on the games channel," Holden told CNET's NEWS.COM.

AOL's pending acquisition of CompuServe consumer unit could only make matters worse, he added. Holden expects the Justice Department will contact Kesmai as part of its inquiry into the AOL-CompuServe buyout.

"We think that News Corporation is suing in an effort to get through litigation what they could not achieve through negotiation," said an AOL spokeswoman. "The suit has no merit, and this is nothing more than a contractual dispute. News Corporation is seeking to improve their position on our service without paying for it." Kesmai, a pioneer of multiplayer games, publishes and distributes online multiplayer games developed by its Kesmai Studios subsidiary, as well as other game developers.

Online gaming companies have been struggling to make money on the Web. The companies involved, including TEN and Mpath, have been retooling their pricing and business models to lure more subscribers.

AOL users have rebelled ever since the service launched pay-for-play gaming, saying that it ran counter to AOL's unlimited pricing policy. Users have launched online petition drives and letter-writing campaigns protesting the move. Many have also said they'd be happy to jump into a class action on the matter.

Earlier this summer, AOL was criticized by MetaCreations, a longtime content provider that charged the online service with abruptly canceling its game contract, affecting 80,000 subscribers. It blamed the action on AOL's demands that it "pay excessive fees where none previously were charged." As a result, MetaCreations said it would accelerate its migration to the Web for gaming.

Senior writer Janet Kornblum contributed to this report.