Antitrust probe opened over Google, Yahoo deal Feds seeking documents from advertising pact

A news ticker carries headlines about Yahoo and Google above a Yahoo billboard on Thursday, April 17, 2008 in New York's Times Square. Microsoft Corp. has yet to convince Yahoo Inc. to agree to a friendly takeover. Yahoo may pursue an advertising alliance with Google Inc. that could lead to a long-term partnership. (AP Photo/Mark Lennihan) less A news ticker carries headlines about Yahoo and Google above a Yahoo billboard on Thursday, April 17, 2008 in New York's Times Square. Microsoft Corp. has yet to convince Yahoo Inc. to agree to a friendly ... more Photo: Mark Lennihan, Associated Press Photo: Mark Lennihan, Associated Press Image 1 of / 3 Caption Close Antitrust probe opened over Google, Yahoo deal 1 / 3 Back to Gallery

The Justice Department has opened a formal antitrust investigation into a deal struck last month that would allow Google to provide some search advertising for Yahoo, according to sources familiar with the inquiry.

Investigators are planning to demand documents not only from Google and Yahoo, but also from other large companies in the Internet and media industries, said the sources, who spoke on condition of anonymity because the investigation is ongoing.

Google and Yahoo officials have said since the deal's announcement that they would delay its implementation for a voluntary Justice Department review. But a formal investigation signals that the department may have found some cause for concern.

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Lawyers familiar with similar investigations said that the kind of legal requests being issued by the Justice Department in this case - "civil investigative demands" - are not used for routine matters.

"They don't do it without having identified significant issues," said M.J. Moltenbrey, a Freshfields Bruckhaus Deringer lawyer who was director of civil nonmerger enforcement in the Justice Department's antitrust division in the 1990s. "It involves approval at higher levels within the antitrust division."

"It doesn't mean they have drawn any conclusions," said Peter Guryan, a partner with Fried Frank and formerly an antitrust lawyer in the Justice Department. But "it is a significant step beyond a request for voluntary information," he said. "It demonstrates that the DOJ clearly has questions."

Officials with Google and Yahoo declined to comment on whether they have received any formal investigative demands or on any details about their discussions with the Justice Department. Officials with the Justice Department also declined to comment.

The investigation arises as a high-stakes fight is under way to control Internet advertising, and, by extension, the content it supports.

Mountain View's Google, according to its competitors and critics, could gain a monopoly in Internet advertising if the deal with Sunnyvale's Yahoo is permitted.

One of the largest chunks 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.

Google's is the dominant search engine, while Yahoo's and Microsoft's efforts run a distant second and third.

Under the Google-Yahoo deal, announced June 12, Google would provide search advertising to Yahoo for some Yahoo searches in the United States and Canada. The two would share the advertising revenue, with Yahoo estimated to receive as much as $800 million annually from the agreement.

By proposing to unite the two biggest players in search advertising, however, the agreement quickly aroused critics who said the move would allow Google to become a monopoly for advertising in the new medium.

Shortly after the announcement, the heads of key subcommittees in the House and the Senate reiterated their intentions to look into the Google-Yahoo arrangement.

Even so, attorneys for Google have appeared confident that they could convince Department of Justice 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.

In Google's view, consumers and advertisers would benefit from the deal because Google's method of determining what ads to place beside a search query is the best in the industry.