Google called off Yahoo deal as DOJ closed in

Computerworld - Google Inc. called off its proposed search advertising deal with Yahoo Inc. just three hours before the U.S. Department of Justice was to file an antitrust complaint on Nov. 5 aimed at blocking it, according to the lawyer that the government hired to pursue the case.

In an interview with the legal blog AMLaw Daily published Dec. 2, Sanford Litvack -- the attorney who would have been the lead counsel on the antitrust case -- said that Google and Yahoo decided to abandon the proposed deal shortly after DOJ officials informed them of the agency's plans to file the antitrust complaint.

Shortly after the deal -- which would have had Yahoo running Google advertisements alongside its own search results -- was announced in June, Google and Yahoo came under fire from large advertiser groups, which charged that the arrangement would diminish competition and raise online advertising prices.

And an antitrust think tank said the partnership could end up as a "black hole that swallows up Yahoo," thus justifying an antitrust investigation.

In addition, the chairman of the U.S. Senate's antitrust subcommittee in October urged the DOJ to closely examine the proposed partnership, noting that it could lead to higher advertising prices and create unfair market conditions. Sen. Herb Kohl (D-Wis.) said at the time that the subcommittee's investigation found that many advertisers and competitors were concerned that Google would control a dominant share of the search advertising market. Under the deal, Yahoo would have less incentive to compete against Google and could opt to exit the market altogether, Kohl asserted.

Litvack went on to note that the complaint -- which was never filed -- would have charged that the deal would have violated antitrust regulations that bans agreements that restrain trade and prohibit companies from monopolizing or attempting to monopolize trade.

"It would have ended up also alleging that Google had a monopoly and that [the advertising pact] would have furthered their monopoly," Litvack said in the blog. "The fact that we filed a lawsuit would not by itself have stopped them. We would have had to get an injunction from the court, and we would have sought that."

In the interview, Litvack went on to acknowledge that Microsoft Corp. and other companies lobbied the department to block the proposed deal, but said that the efforts had no influence on his decision to recommend that DOJ block the deal.

"[The department is] making it clear to the parties and to the world that this is how the division viewed these particular aspects of Google's business," Litvack added in the blog. In a statement after the deal was called off, the DOJ said that under the agreement, Google and Yahoo would have become collaborators rather than competitors for a significant part of their search advertising business, "materially reducing important competitive rivalry between the two companies."