November 4, 2003 5:48 PM PST

Lycos sues Overture over search deal

By Stefanie Olsen
Staff Writer, CNET News

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Waltham, Mass.-based Lycos filed suit against Overture on Oct. 16 in the U.S. District Court of Massachusetts. The suit charges that Overture, a provider of sponsored search results, willfully disregarded its contractual obligation to obtain consent from Lycos before it would share confidential information about its business with third parties. Pasadena, Calif.-based Overture, now owned by Yahoo, was also obliged to obtain consent before being acquired by any Lycos rival, according to the complaint.

"Yahoo is a 'Lycos Competitor' as defined in the Agreement. Overture did not seek or obtain Lycos's consent prior to Overture's assignment of the agreement to Yahoo...Overture's assignment absent Lycos's consent is breach of the agreement," according to the filing.

In addition, the complaint said that Overture owes Lycos in excess of $800,000 under the terms of the agreement.

Lycos is the latest Internet company to tussle with Overture over contractual agreements post its Yahoo buyout. European Internet service provider T-Online switched its commercial search services to Google from partner Overture shortly after that company agreed to be bought by Yahoo, citing a "change of ownership" clause in the agreement. But it was forced to backtrack after Overture took legal measures against it. The Internet service provider (ISP) was free to replace Overture with Google once the deal closed Oct. 7, and has since done so.

Lycos hired Overture in September 2001 to display sponsored, pay-per-click listings whenever people used its Web search tool. The deal was mutually beneficial: When people clicked on Overture's sponsored listings, it would pay Lycos a percentage of the listing fee it collected from advertisers.

But since Overture agreed to be bought by Yahoo in July, Lycos has re-evaluated its options. On Sept. 30, the company agreed to partner with its chief rival Google for contextual advertising across its site, a new form of pay-per-click advertising that Overture has also begun offering.

That move came only days after Lycos received a letter from Overture that "without any explanation or reference to the relevant text of the agreement, Overture simply asserted that 'under the transaction (with Yahoo), there will be no assignment of the agreement," according to the complaint. That means that Overture, in its view, did not have to seek permission from Lycos for the merger.

Google has been beefing up its advertising offerings, adding a self-serve option in August, among other features. The company recently announced that it has signed 150,000 advertisers to its network.

A Lycos representative said the company does not discuss legal proceedings. Overture did not immediately return phone calls seeking comment.

CNET Networks, publisher of News.com, has also clashed with Overture, its longstanding commercial search partner. CNET recently replaced Overture with Google, yet an Overture representative has said that the company does not believe CNET has the right to terminate and the company "is currently looking at all the options."

CNET declined to comment on matters concerning its partners.

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