AOL States Fears Over Disneys Record Handling

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Washington-America Online Inc. and The Walt Disney Co. clashed last week over Disney's handling of confidential business records that AOL had turned over to federal regulators.

AOL urged the Federal Communications Commission to investigate and take appropriate action after Disney's law firm here admitted it violated rules designed to protect AOL's records from disclosure to unauthorized parties.

The online provider submitted the records because the FCC is considering its proposed merger with Time Warner Inc. Disney lawyers and employees who do not make business decisions for the company are permitted to review the documents-which likely include contracts, business proposals and various business-sensitive plans-but cannot disclose their contents.

The FCC "will presumably take what action they feel is appropriate," George Vradenburg III, AOL's senior vice president for global and strategic policy, told reporters last week.

The flap may turn out to be little more than a slip up by a Disney law firm here. The matter garnered press attention, however, because Disney has been one of the most vocal opponents of the AOL-Time Warner merger.

Preston Padden, Disney's executive vice president of government relations, declined to answer questions on any aspect of the matter.

"This is a question about confidential material and I am going to honor the confidentiality by not discussing it," he said.

In a Sept. 29 letter to FCC general counsel Christopher Wright, Vradenburg said the company was "deeply concerned" by Disney's admission it had violated an FCC protective order on the AOL records.

In the two-page letter, he said AOL was further troubled because Disney waited five days to inform the FCC of the confidentiality breach and during the five-day period, AOL arranged for Disney lawyers to examine additional AOL records.

Had AOL known about the violation earlier, Vradenburg said, it could have challenged Disney's right to review additional materials. Disney had the duty to notify the FCC and AOL immediately, Vradenburg said.

On Sept. 27, Disney's law firm here-Verner, Liipfert, Bernhard, McPherson & Hand-told the FCC that one of its lawyers sent an e-mail on Sept. 22 that described "a number of confidential [AOL] documents" to two in-house Disney lawyers here. One of the in-house attorneys forwarded the e-mail "to a number of other Disney personnel." None of those Disney employees were authorized to see the e-mail.

Verner, Liipfert attorney Lawrence R. Sidman-who in his letter to the FCC did not say why he waited five days to make the disclosure-said the e-mail release of AOL information was inadvertent, and all unauthorized Disney recipients were told to disregard the e-mail and delete it.

AOL wants a copy of the e-mail so it can obtain the names of its recipients and to get an accounting of why Disney waited five days to inform AOL and the FCC of its infraction.

Bruce Fein, former FCC general counsel from 1982 to 1984, said he didn't recall a similar controversy when he worked at the agency. He doubted Disney's action would result in any serious penalty.

"Unless there was something conspiratorial about the plan, I doubt there will be anything but a verbal reprimand," he said. "There doesn't seem to be evidence of purposeful evasion of the order for some ulterior, sinister motive."

An FCC source said the agency is "reviewing the submissions to determine whether an investigation is appropriate or necessary."

Potential penalties include fines, denying Disney further access to AOL records, and suspension or disbarment of the responsible attorney from practicing before the FCC.

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