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Judge issues injunction against AOL in contract dispute

America Online subsidiary Digital City is dealt a major setback in a lawsuit brought by a former partner,, over a broken advertising contract.

America Online subsidiary Digital City has been dealt a major setback in a lawsuit brought by a former partner,, over a broken advertising contract.

A state appeals court in Virginia today issued a preliminary injunction reinstating the deal between the companies pending trial, finding that HotJobs is "very likely to prove that (Digital City) breached the contract." According to court papers, HotJobs has charged Digital City with illegally scotching the deal after AOL entered an exclusive advertising agreement with online jobs board, one of its main competitors.

Perhaps more significantly, AOL's squeeze play the court found that HotJobs would suffer irreparable harm if the contract was not immediately reinstated, concluding that there is "no other available advertising opportunity (on the Internet) that is economically interchangeable with the HotJobs-DCI agreement."

According to the ruling, the deal provided HotJobs with ad placements on AOL and other sites that reached nearly 78 percent of all Internet users.

"We believe our actions were justified, and we intend to appeal the decision," said Wendy Goldberg, an AOL spokeswoman.

HotJobs could not immediately be reached for comment.

The dispute underscores growing tensions between AOL and some of its smaller partners that could pose headaches for the online titan as it prepares to merge with media giant Time Warner.

AOL has so far avoided the antitrust scrutiny visited on Microsoft and Intel; giants in their respective fields, both of those companies have been drawn into the antitrust spotlight as their industry influence has grown. Some analysts have said that America Online, currently the largest Internet service provider, could come under the same scrutiny as it expands its business.

AOL has been hit with several lawsuits alleging that its AOL 5.0 software interferes with connection settings to other Internet service providers when it is installed on a personal computer, including a case filed today in federal court in Denver. AOL has denied the charges.

Former content partners also have charged that AOL has interfered with advertising deals involving its competitors, including other Internet service providers., which had paid millions of dollars to be featured on AOL's popular sites for years, recently declined to renew its contract, alleging that AOL has used hardball negotiation tactics. AOL has refused to discuss specific contracts but denies it has ever treated its partners improperly.

HotJobs is an Internet employment exchange and recruiting company that allows customers to search through online job listings. Digital City provides local guides for 60 metropolitan areas, including information about weather, sports, entertainment and classified ads.

According to court papers, Digital City agreed late last year to carry HotJobs advertisements for a year on sites on its distribution network, which include AOL, CompuServe, Netscape and MCI WorldCom.

The contract was scheduled to take effect in November, but it was delayed because of technical difficulties; AOL subsequently signed its exclusive deal with Digital City then tried to call off the HotJobs deal, citing contract language giving it the right to cancel and remove any ad upon 30 days' notice.

In issuing the preliminary injunction, however, the court found that the provision applied only to specific advertisements and does not give Digital City the right to pull out of the contract altogether.