EarthLink filed suit in the Federal District Court for the Middle District of California, the company said, alleging that Microworkz failed to pay EarthLink for providing Internet connection to Microworkz customers, as required under the contract.
Ironically, the lawsuit was announced a day before EarthLink is preparing to announce an iMac deal, a differnet type of PC-ISP approach with a start-up called FreeMac.com.
Microworkz said it will countersue, alleging that EarthLink rigged it up with faulty software.
The fees from Microworkz, however, were never received, she added. Approximately 1,000 customers signed up for free service. Microworkz terminated the deal a few weeks ago, but, until recently, was also offering customers 30 days worth of free EarthLink service on any PC purchased. Customers who signed up for the free service will still get their year's worth of complimentary ISP connection, the spokeswoman added.
Last week, the company terminated its contract with Microworkz, which had bundled free EarthLink service with its low-cost machines. The suit seeks to recover the unpaid fees owed to EarthLink.
The EarthLink spokeswoman also indicated that the company was concerned about the complaints concerning Microworkz. One of the pioneers of the free, or subsidized, PC movement, Microworkz has been hit with a rash complaints from buyers over late deliveries, lost refunds, and poor customer service during the past five months. (See related story.) A war of words has been escalating between the two companies for some time, although they have only been working together for a few months.
Former Microworkz executives have also said that a number of high level executives and members of the board of directors have resigned.
Despite the experience with Microworkz, EarthLink has not soured on deals where computers are subsidized through ISP contracts. Tomorrow, FreeMac.com will unveil a plan to give away 1 million Apple iMacs over the next two years. Each of these Macs will come with EarthLink ISP service.
That deal, however, is structured quite differently. With the Microworkz deal customers received a free year's worth of ISP service, which Microworkz and EarthLink subsidized through the controversial contract.
Under the FreeMac.com deal, customers have to sign up for three years of paid-for service to get a free PC. Customers also will get bombarded with advertising, according to sources. Further, FreeMac customers will be getting computers from a company with an established brand.
Without commenting on tomorrow's deal, the EarthLink spokeswoman acknowledged that all free PC deals are not created equally.
"With an established PC company, absolutely they are going to be successful. When you look at the Apple's of the world, it makes a lot of sense," she said.