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AOL gaming fight goes to court

After months of trading barbs, an antitrust lawsuit filed against AOL by game maker Kesmai is headed for trial.

After months of barbs traded in court filings, an antitrust lawsuit filed against America Online by Kesmai, the computer game maker owned by Rupert Murdoch's News Corporation, is headed for trial.

A pre-trial hearing is set for Friday, and the trial itself is planned for June 29. The suit between the two media powerhouses--one "old" and one "new"--also includes allegations of trademark infringement against AOL. Besides seeking damages of $100 million or more, Kesmai wants to change the way AOL runs its online gaming channel and make certain divestitures related to its recent buyout of CompuServe, Kesmai attorneys said.

Kesmai's core argument is that AOL, the nation's largest online service, is monopolizing the online market and attempting to extend its dominance into online gaming--a burgeoning business.

The suit is being watched in the online community, as other companies have made complaints similar to Kesmai's (See related story). Some content providers are leery of AOL's growing dominance in delivering online information and entertainment, while others applaud the distribution the online giant can provide. The lawsuit also should provide a rare public glimpse into AOL's practices with its online partners, because most contractual details typically are kept private.

"Our allegations are that AOL illegally gained a monopoly in the online services market, and used that monopoly to leverage itself to gain an unfair advantage in the market that Kesmai operates in," said Philip Barber, an attorney for Kesmai. He added that AOL also is trying to dominate the "games aggregation" market.

"Through a whole host of anticompetitive and predatory acts," Barber added, "AOL either gained or attempted to gain a monopoly in all three markets."

AOL, for its part, said Kesmai's suit is without merit. In March, the online company countersued Kesmai, charging it with malicious prosecution and breach of contract.

"We have always believed this is nothing more than a contractual suit," said Tricia Primrose, an AOL spokeswoman. "Kesmai is suing in an effort to get through litigation what they couldn't get through negotiation."

Because Kesmai's dispute with AOL involves proprietary information, court documents filed in the case have been kept under protective seal. But those documents will come to light once the trial begins.

This Friday, U.S. District Judge Leonie Brinkema, who is handling the case, will hear attorneys for both sides argue a number of motions for summary judgment filed in the case. Kesmai is expected to argue that it already has proven AOL has infringed on its trademarks, and that AOL's allegations of fraud should be dismissed. AOL is expected to argue that the antitrust, defamation, and trademark claims against it should be dropped.

The hearing could have a profound impact on the scope of the trial.

Kesmai's suit takes aim at changes AOL has instituted in its gaming business. In August 1996, AOL bought online gaming concern ImagiNation Network from AT&T, recasting it ten months later as WorldPlay, a "pay-to-play" gaming unit featured on its site. Kesmai alleges that the action allowed AOL to "subsume" Kesmai's online gaming offerings on AOL, and to give WorldPlay an unfair leg up against its competitors.

The online gaming industry, whose players also include companies such as TEN and Mpath, is characterized by cutthroat competition. In February, AOL said it was laying off some 55 of the 60 employees who comprised WorldPlay, part of a broad restructuring plan in its content business.

Kesmai also alleges that AOL's acquisition of CompuServe, announced just before the suit was filed, is an illegal merger. Barber, Kesmai's attorney, said the suit seeks injunctive relief in response to the merger, which was completed in February. He would not elaborate, however.