Google and Yahoo face intense U.S. Justice Department scrutiny of their deal to share some advertising revenue, and the heat will likely increase under a new administration, antitrust experts said.
Google, with more than 60% of the Web search market, and Yahoo, with 16.6%, announced a deal last week that would allow Yahoo to place Google ads on its site and collect the revenue.
More Internet Insights White Papers Effectively Managing Online Transactions with CA’s APM Solution Announcing Project Z The firms said Yahoo's cash flow could grow by $250 million to $450 million in the first year under the deal, which Yahoo sought as an alternative to software giant Microsoft's $47.5 billion buyout offer.
Yahoo and Google describe the deal as very limited. "These are still independent companies who will continue to compete aggressively," said Yahoo lawyer Hewitt Pate of law firm Hunton and Williams.
But the deal has raised eyebrows among antitrust lawyers.
Bruce McDonald, a Jones Day antitrust attorney and former deputy assistant attorney general, pointed out that the arrangement could lessen Yahoo's incentive to compete vigorously against Google because Yahoo would collect revenue no matter which company placed an advertisement.
Evan Stewart, of law firm Zuckerman Spaeder, agreed.
"Rhetoric is not evidence," he said. "At the end of the day, you're going to have to show some very effective computer modeling ... to show that consumers are at worst no worse off."
"The Justice Department should have a very healthy skepticism when number one and number two get together for a joint venture and say they're going to compete," he added.
But David Turetsky, of Dewey and LeBoeuf, pointed out that Google and Yahoo crafted the deal after a test that the Justice Department looked into.
"They've had a dialogue with the DOJ (Justice Department) ... which is unusual. DOJ is not in the business of giving counseling to companies as to what flies," Turetsky said.
But companies that buy ads are already concerned.
"Given the history of what's taking place here, I would be very suspicious. I would think that they were structuring it to avoid regulation," said a lawyer who asked not to be named because he represents advertisers concerned about the deal.
This lawyer predicted the Justice Department would approve the deal -- "they give everything a thumbs up" -- but it could run into trouble after President Bush's team leaves office next year.
Both leading presidential candidates, Republican Sen. John McCain and Democratic Sen. Barack Obama, are expected to take a tougher antitrust line than Bush.
"This is something that is obviously reviewable by any new administration," said the lawyer representing advertisers.
Stewart agreed: "You don't get a lifetime exemption from antitrust laws if it's been looked at once."
McDonald seemed less concerned.
"(There's) pretty much bipartisan agreement on how you approach antitrust problems," he said, adding: "There's room for judgment calls."
A source familiar with Microsoft's thinking argued that the Yahoo/Google deal essentially set up minimum prices since Yahoo would never sell an ad for less than Google would give for that space on a user's computer screen.
"They find themselves in a situation where the agreement itself may very well be per se illegal," the source said. "That's a price floor, in antitrust parlance."
Google and Yahoo will give antitrust authorities 100 days to look at the deal before beginning it. The clock started ticking last Friday, and Justice Department spokeswoman Gina Talamona said the division had already begun work on it.Return to internet news headlines
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