The US Department of Justice has hired a high-profile antitrust attorney to help it review, and possibly challenge, the Yahoo agreement to outsource part of its search advertising business to Google, The Wall Street Journal reported on Tuesday.
The retaining of former Walt Disney vice chairman Sanford Litvack is a sign that the DOJ may be readying an antitrust lawsuit to block the deal between Yahoo and Google, which would give them control over 80 per cent of search ads in the US, according to the newspaper.
The DOJ has been taking depositions from witnesses and requesting documents via subpoenas for weeks as it mulls challenging the Google/Yahoo deal in court, the Journal reported, based on information from anonymous sources familiar with the issue.
A DOJ spokeswoman declined to comment about the article.
Google said in a statement that it delayed implementing the agreement precisely to give the DOJ a chance to understand that the Yahoo deal "is beneficial to competition." Conversations between Google and the DOJ continue, Google said, adding that it doesn't plan to discuss details of the regulatory process.
"While there has been a lot of speculation about this agreement's potential impact on advertisers or ad prices, we think it would be premature for regulators to halt the agreement before we implement it and everyone can judge the actual impact," a Google statement reads.
Meanwhile, Yahoo also said in a statement that it has been in "constant and productive" conversations with the DOJ and that it knows that the DOJ is seeking advice from an outside consultant. "We remain confident that the deal is lawful and that when the federal and state regulators with whom we have been working see it in action, they will find it to be pro-competitive and good for the marketplace," a Yahoo statement reads.
According to the Journal, Litvack has been hired to examine the gathered evidence and architect the lawsuit if the DOJ decides to challenge the Google/Yahoo deal in court. The DOJ may opt to even take a broader tack and sue over Google's online advertising position, the Journal reported.
Google and Yahoo signed their controversial agreement in June and said they would delay its activation for up to three and a half months to give the DOJ a chance to review it. The non-exclusive deal lets Yahoo run Google ads with the Yahoo search results and on some Yahoo web sites in the U.S. and Canada.
Yahoo, a distant second to Google in search engine usage and advertising, argued that the deal will allow it to improve its competitive position in this market. However, critics view the deal as a further sign of the weakness in Yahoo search advertising and as a vehicle for Google to strengthen even more its already dominant position.
Far from a competitive move, the deal is a desperate and short-term move by Yahoo to get a much needed cash infusion at a time when its finances are in disarray and the company is a takeover target, critics have said.
Yahoo has acknowledged that the Google deal represents an annual revenue opportunity of about US$800 million and that, in its first 12 months after implementation, the deal could generate it between $250 million and $450 million in incremental operating cash flow.
In fact, the Yahoo top executives began cooking the deal while the company was in the midst of its turbulent, months-long acquisition attempt by Microsoft. The possibility that Yahoo might cut a search ad outsourcing deal with Google played a big part in the Microsoft decision to abandon its bid, Microsoft CEO Steve Ballmer said in May when explaining his company's decision to walk away.
Litvack's hiring carries echoes of the DOJ hiring David Boies prior to launching its antitrust lawsuit against Microsoft in 1998 and of the hiring of Stephen Axinn to challenge WorldCom intentions to acquire Sprint in 2000, according to the Journal. Litvack resigned last week from Hogan & Hartson LLP, the Journal reported.
Among those objecting to the deal are Microsoft and the Association of National Advertisers, which warn that the deal could lead to higher prices and decreased competition.