AOL, Microsoft settle antitrust suit

By Steve Malone and Matt Whipp

Posted on 30 May 2003 at 11:18

Industry giants Microsoft and AOL have cut a deal over the private antitrust lawsuit filed by AOL in 2002. The action alleged that Redmond used unfair practices during the browser wars with Netscape in the mid 90's. Netscape Communications is now a subsidiary of AOL.

As part of the settlement, AOL Time Warner comes away with a bagful of goodies. It gets a seven-year, royalty-free licence to use Internet Explorer as its browser as well as the right to use Microsoft's entire Windows Media 9 Series digital media platform which includes, digital encoding, streaming software and end user players, 'if it so chooses'. The deal also includes future versions of DRM and Media Player. On top of all this, AOL is to be handed a $750 million cheque for its trouble.

Windows Media 9.0 is important to AOL as it contains Microsoft's DRM (Digital Rights Management) technologies which makes casual piracy a lot harder. With AOL Time Warner now seeing itself primarily as a content provider first and an ISP second, DRM is vital if it is going to allow downloads of films and music from its site and avoid having illegal copies floating around the internet within hours.

In another part of the agreement the two companies have stated that they will be 'Seeking areas where they can align on public policies and legal actions that will advance the interests of consumers (sic) and the relevant industries (and)... Building consumer awareness around intellectual property and the need to respect copyrighted works'. In other words, woe betide anyone who cracks the DRM and distributes pirate copies of the Matrix: Reloaded.

The agreement will be seen as a blow to the dwindling Netscape community. With the seven-year free licence to use IE in the AOL client plus a commitment by Microsoft to provide technical information contained beta versions of its Windows operating system - such as the forthcoming 'Longhorn'- to AOL to ensure smooth compatibility, there is little incentive for AOL/Time Warner to continue to throw money into Netscape.

The chances of Netscape appearing as a default browser in future versions of the AOL client must now approach zero. Just to make sure, Microsoft is committed to regular technical 'show and tell' meetings with AOL engineers to keep them on board. With this announcement, Netscape is effectively out of the game.

The two companies will also `explore` ways to establish interoperability standards their rival Instant Messenger products.

Oh, and Microsoft says it will distribute AOL CDs through its Windows OEMs. Just what we all need.

So what does Microsoft get out of all this? Quite a lot actually. Firstly, it avoids being dragged through the courts yet again with everyone reminded of its alleged underhand practices against Netscape and pulls the rug from under the antitrust settlement agreed between Microsoft and the DoJ: what's the point in being able to remove the IE icon from the desktop to replace it with an AOL shortcut? In effect, Microsoft has killed any chances of a resumption of the browser wars - and presumably won't have to invest in updating its ageing IE 6.0 product in response to any serious challenge from AOL.

This is also a huge step in Redmond's efforts to get its Windows Media encryption technology accepted as a world wide standard. More importantly, it gets its Windows Media DRM software used by the biggest content provider in the world while at the same time giving a slap in the face to its main competitor RealNetworks who has, up to now been AOL's sole media streaming partner.