San Francisco — The US Justice Department’s antitrust division said that it has formally begun an antitrust inquiry into a planned Google-Yahoo deal reached last month that would authorize Internet behemoth Google to provide some search advertising for Yahoo, according to sources familiar with the inquiry.
“We are examining the competitive effects of the transaction and how it affects consumers,” department spokeswoman Gina Talamona, said in a statement.
Both Google Inc. and Yahoo Inc. are anxious to have antitrust regulators quickly sign off on their proposed search-advertising pact, not least because of the probability for stricter enforcement under a new administration in Washington.
The summons are being issued not only to Google and Yahoo, but also to Microsoft, an Internet search rival, and other companies including advertisers and media companies, said the person, who asked not to be identified because he was not authorized to speak.
News of the summons, known as Civil Investigative Demands, or CIDs, was first reported Wednesday in The Washington Post.
The examiners are planning to call for documents not only from Google and Yahoo, but also from other big companies in the Internet and media industries, said the sources, who spoke on condition of anonymity because the investigation is ongoing.
Officials are longing to find out whether the revenue-sharing deal risks creating an effective monopoly for the two companies which, between them, account for almost three out of four of the world’s online searches.
Both companies express they are positive the Justice Department’s ongoing antitrust review will leave them in the clear. But when businesses take the opportunity to get the government’s blessing on a business partnership, the process can get dragged out by an absence of firm deadlines, antitrust lawyers say.
Google and Yahoo have been constantly discussing the issue with the Justice Officials ever since the search ad partnership they declared in May, and mutually agreed to delay starting the partnership for three and half months to give the government time to review the deal. Under the pact, Yahoo, the No. 2 in Internet search, would farm out some of its search advertising to Google, the dominant No.1 in search.
“If I was their legal adviser, I would be saying you should look at the fact that if we delay, there will be a new administration and no one knows what its policies will be,” said Warren Grimes, a professor at Southwestern Law School in Los Angeles.
But lawyers familiar with similar inquiry said that the kind of writ petition being issued by the Justice Department in this case – “civil investigative demands” — is not used for routine matters.
“They do not do it without having identified significant issues,” said M. J. Moltenbrey, a Freshfields Bruckhaus Deringer lawyer who was director of civil non-merger enforcement in the Justice Department’s antitrust division in the 1990s. “It involves approval at higher levels within the antitrust division.”
The scrutiny springs up as a high-stakes fight is underway to control Internet advertising, and, by extension, the content it supports.
Google, according to its competitors and critics, could gain a monopoly in Internet advertising if the deal with Yahoo is allowed.
As per the partnership, Google would control some queries made on Yahoo’s search service, and match them with an ad in hopes of better-grabbing user interest and generating revenue. Yahoo, who has endured due to Google’s efficiency at wringing money from search advertising, says the deal should provide $250 million to $450 million in additional operating cash flow in its first year.
One of the biggest portions of Internet advertising today is “search advertising,” or the ads that run alongside Internet search results delivered by the major search engines: Google, Yahoo and Microsoft.
“Appearing unscathed from a failed courtship with Microsoft, Yahoo last month rushed into Google’s laps announcing a non-exclusive partnership in the hope that an alliance will improve its sagging fortunes and quell a rebellion by stockholders.”
Yahoo anticipates the 10-year deal would raise revenue by $800 million in its first year and to provide an extra $250 million to $450 million in incremental operating cash flow.
Soon after the announcement, the chiefs of key subcommittees in the House and the Senate reiterated their intentions to look into the Google-Yahoo arrangement.
In an effort to settle down antitrust concerns surrounding the deal, Yahoo CEO Jerry Yang went Capital Hill in June and met with Sen. Herb Kohl, D-Wisc., who chairs the Senate Antitrust Subcommittee.
Kohl had earlier expressed apprehensions that the deal between two technology search rivals could affect competition and have ramifications for advertisers and consumers. He said at the time that the antitrust subcommittee would investigate the competitive and privacy implications of the deal.
Even so, attorneys for Google have appeared confident that they could convince Justice Department reviewers, as well as congressional committees, that the deal would be good for consumers.
“We do feel that it is a pro-competitive deal,” said Google’s general counsel, Kent Walker.
Moreover, competitors in other industries have reached agreements that have passed muster with regulators, Google officials have said.
“Toyota sells its hybrid technology to General Motors, even though they are the number one and number two car manufacturers globally,” Omid Kordestani, a Google senior vice president, noted in a blog post. “Canon provides laser printer engines for HP, despite also competing in the broader laser printer market. Google and Yahoo will continue to be vigorous competitors, and that competition will help fuel innovation that is good for users.”
But critics and competitors of Google — chief among them Microsoft — have argued that the deal will limit choices for advertisers and render Yahoo less likely to compete against Google.
Asked whether Microsoft has been issued a demand for information in the investigation, a company spokesman declined to comment.
“This is a complicated situation, but one of the key questions is very simple,” said David Balto, an antitrust lawyer who was competition policy director at the Federal Trade Commission during the Clinton administration. “What is Yahoo’s incentive to continue to compete?”
Google countered that search ads are only a narrow part of the online ad market, and that Yahoo is the strongest company when it comes to the graphical “display” ads.
Google’s share of the U.S. search market reached 68.29 percent in May, according to Hitwise’s most recent numbers. Yahoo’s share of the market declined to 19.95 percent from 20.28 percent in the same time.
In another twist in the Yahoo saga, fresh anecdotes reappeared on Wednesday that Microsoft is interested in buying at least part of the California firm.