News > Technology
AOL, Microsoft negotiate
June 4, 2001: 2:03 p.m. ET

Companies resume discussions amid mounting legal challenges
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NEW YORK (CNNfn) - After halting discussions regarding the inclusion of America Online's Internet software with its soon-to-be released upgrade of the Windows operating system, AOL and Microsoft have returned to the bargaining table.

"We're back at the table, we're happy to be back at the table, and hope to reach a mutually beneficial conclusion," said Microsoft spokesman Jim Cullinan.

AOL and Microsoft have been in negotiations regarding the inclusion of AOL 6.0 with the next version of Microsoft's operating systems software, called Windows XP, due out this fall after an earlier deal expired in January.

However, the talks reportedly broke down after the two sides disagreed on two key issues. The first is whether AOL would incorporate Microsoft's streaming media program, called Windows Media Player, in its software. The second is about making "AOL's Instant" Messenger compatible with Microsoft's "Messenger" service.

AOL is owned by AOL Time Warner (AOL: down $0.86 to $51.89, Research, Estimates), which also owns CNNfn.

Even though the talks have resumed, sources close to the negotiations said the companies are still "far apart" on key issues, "from technical questions to the overall relationship."

As for the streaming media issue, AOL currently has a contract with RealNetworks under which it has agreed to keep its "RealPlayer" as the exclusive streaming media software for AOL users. While the exclusivity provision in the contract ends this summer, Real Networks cannot be bumped from the service even after that time, sources said.

Microsoft (MSFT: up $0.07 to $70.41, Research, Estimates) has poured significant resources into developing its Media Player, which is a standard part of its Windows operating system, and it has been trying to displace RealNetworks' streaming media products and technology, which users typically must download and install.

As for the messaging issue, sources said the two parties have agreed to discuss that during a later phase of the negotiations. The two companies have locked horns several times during the last two years over whether AOL's Instant Messenger and Microsoft Messenger can be made interoperable.

Hanging over the negotiations are legal issues. AOL was one of the most vocal in speaking out against Microsoft during its landmark antitrust trial. After ruling that Microsoft has violated U.S. antitrust laws abused its monopoly power in computer operating systems, a federal judge in June 2000 ordered the company split into two smaller companies to prevent it from violating state and federal antitrust laws in the future.

The U.S. Court of Appeals is currently reviewing that order and is expected to hand down its decision sometime this spring or summer.

Separately, CNNfn has learned that AOL Time Warner Deputy General Counsel Randy Bowe has been lobbying government regulators about what the company sees as anticompetitive aspects of Windows XP. One AOL Time Warner executive said, "We think it's a chokehold on the music industry.  We think it's a chokehold on photography."

Executives at AOL Time Warner Monday downplayed the importance of the negotiations with Microsoft.

"This is not a flashpoint for us," said Executive Vice President Kenneth Lerer. "Its an evolutionary issue. It's not a make-or-break situation." graphic

Reuters contributed to this report


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