AOL May Resume Rivalrous Campaign

TIMES STAFF WRITER

The Microsoft ruling is certain to heighten tensions in cyberspace's biggest rivalry--AOL versus Microsoft.

AOL, analysts say, is likely to resume, if not accelerate, its lobbying campaign against Microsoft. It will remind members of Congress, the Bush administration and anyone else who will listen that its Redmond, Wash.-based rival has been branded a monopolist by the nation's second-highest court.

AOL also is likely, some observers say, to take an active role in the case when it is sent back to the lower court, just as it did in the first case when it filed papers in support of the government's position.

"AOL has lost the greater battle" for breaking up Microsoft, said Rob Martin, analyst at the investment firm of Friedman, Billings Ramsey. "Now it's a function of getting as much incremental value as they can out of any future judicial action."

The federal appeals court ruling--which set aside the breakup order but affirmed that Microsoft acted illegally--gives AOL more legal ammunition should it decide to pursue a private antitrust lawsuit against the software giant, some analysts say.

AOL officials declined to comment on the ruling Thursday.

The company inherited a potential legal claim against Microsoft after it bought Netscape Navigator for $4 billion in 1999. Once the dominant Internet browser, Netscape foundered after Microsoft bundled its own Internet Explorer into the Windows operating system. Netscape's tumble was a key issue in the government's antitrust case.

The companies compete in other ways. AOL and Microsoft are ranked as the No. 1 and No. 2 Internet service providers. They compete for the business of Internet consumers, selling products and services over the Web. And they compete on services such as instant messaging.

AOL has so far been unwilling to say if it plans to sue Microsoft. Some sources suggest AOL executives are split on the issue. But one source close to the company says AOL is unlikely to press a private antitrust claim in court, particularly because the two companies still work together in many areas.

AOL uses Microsoft's Internet Explorer browser and Microsoft includes AOL software in its Windows desktop. The two also have to make sure their products work properly together and on each other's platforms.

During recent negotiations to extend the fragile alliance of the two companies, Microsoft pressed AOL to give up its private legal claims as part of a larger deal that would keep AOL software on the Windows operating system.

The talks fell apart and no deal was reached.

"It's still a bargaining chip for AOL," said Fred Moran, analyst at Jeffries & Co. in New York. "But I don't think they have any immediate plans to sue."

Moran said he saw little in Thursday's ruling that would substantially alter the relationship between AOL and Microsoft. "The reality is Microsoft is going to be their biggest, baddest competitor, regardless of whether there is one Microsoft, two Microsofts or multiple Microsofts," he said.

Others debated whether AOL might be hurt by the judges' decision to remand a lower court's ruling that Microsoft illegally bundled its Internet Explorer with the Windows operating system. Judge Thomas Penfield Jackson had found the practice to be improper.

Oracle Chief Executive Larry Ellison said this week that if the bundling claim was tossed out, an emboldened Microsoft would continue to link its other products to the operating system and drive rivals out of business.

"AOL's got a real big problem," Ellison said.

AOL is already sounding warning bells about Microsoft's new operating system, Windows XP.

AOL lobbyists recently warned congressional staffers and state regulators that Microsoft was planning to bundle its other products, including Windows Media Player and an instant-messaging service, into Windows XP, just as it linked its browser to Windows and nearly put Netscape out of business.

But Bill Whyman, president of Washington-based consulting firm Precursor Group, noted that the ruling could help AOL, which could use it to justify its own practice of bundling products within its software.

AOL has been accused of monopolizing the market for instant messaging by refusing to make its system inter-operable with other instant-messaging companies.

"AOL, counter-intuitively, is one of the unexpected winners," Whyman said.

He added that even though the breakup order was set aside, Microsoft will probably still face some restraints on its future conduct, which could benefit AOL.

Stock in AOL Time Warner, parent of AOL, fell 60 cents Thursday to $52.08 in New York Stock Exchange trading.

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