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Lycos sues Micron over Yahoo deal

The portal alleges the PC maker violated a contract when it signed an agreement with rival Yahoo.

Lycos has filed suit in federal court against Micron Electronics, alleging the PC maker violated a contract when it signed a distribution deal with rival portal company Yahoo.

Lycos, which filed the suit on April 7 in U.S. District Court in Massachusetts, alleges that Micron breached a contract to provide co-branded, customized start pages when Micron entered into a similar arrangement with Yahoo. Yahoo is not named as a defendant in the suit.

Lycos is seeking to prevent Micron from terminating a multiyear, exclusive deal and entering into a similar arrangement with Yahoo, which Lycos claims would cause it "irreperable harm." Lycos said that it could lose advertising revenues generated by the site, plus advertising revenues from Micron on Lycos' main site if the contract is not upheld.

The fallout can be seen as demonstrating the risks PC vendors face when they venture outside of their core businesses and try to generate revenue from joint ventures. Gateway experienced similar tangles when it attempted to switch its customers from one ISP provider to another.

For Lycos, the suit underscores how tenacious the company must be to gain new viewers in the face of intense competition. Lycos and Yahoo are currently head to head in the race to become the largest eyeball magnet on the Web.

Lycos declined to comment. A Micron spokesperson said, "We are aware of and are defending the lawsuit, but it is company policy not to comment on litigation."

In the past year, Lycos has been relentless in moving to build its total audience, making several strategic acquisitions of Web properties, including home page builder Tripod, WhoWhere directory service, and the proposed acquisition of Wired Digital.

These moves have propelled Lycos to the fourth-most-visited Web site, ranking behind AOL, Yahoo, and Microsoft's MSN sites, according February figures from Media Metrix. At times, the competitive spirit turned fierce, as seen in Lycos's policy to put an intermediary self-promotional page when "Yahoo" is entered into Lycos's search box.

Now the competition for customers has entered the legal arena.

Lycos said that Micron had backed out of previous negotiations to provide a co-branded start page for Micron PC customers but reentered negotiations when Lycos expressed a reluctance to buy equipment from Micron in a reciprocal deal, according to the suit.

Micron then signed a binding letter of intent, the suit claims, which among other conditions, stated that Micron wouldn't seek a similar deal with competitors until after April 14.

On March 18, the pair entered into a co-branding agreement, and in return Lycos agreed to purchase Micron equipment. Four days later, Micron terminated the agreement, citing the inability of a third party to deliver software code needed to install the Lycos site and Micron's need to launch systems on April 5, according to the suit. Lycos denies that the agreement hinged on any such factors.

On April 6, Micron Electronics, expanding on its strategy to provide an array of services beyond the PC, formally announced a deal to give customized consumer and small business "start pages" through Yahoo.

Lycos is claiming that Micron violated the exclusivity clause in their contract by fact that it negotiated and announced a contract with Yahoo during the specified period, among other violations.

Lycos did not state that it was seeking monetary damages.

News.com's Jim Hu contributed to this report.

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