Yahoo warns EC of its Google search ad deal

Yahoo has notified European antitrust regulators of its search advertising deal with Google, although the deal will only be effective in the US and Canada.


Yahoo has notified European antitrust regulators of its search advertising deal with Google, although the deal will only be effective in the US and Canada.

That information comes as the US Department of Justice has launched an investigation into the antitrust implications of the advertising deal between the two companies.

The decision to provide the information to the European Commission was done out of a "spirit of cooperation" as well as to educate the European regulatory body about the agreement, said Yahoo spokeswoman Tracy Schmaler in an e-mail.

A Google spokesman said both companies have been in touch with the EC as a matter of courtesy despite the fact that the advertising partnership only applies to Yahoo's US and Canadian Web properties.

Antitrust experts weighing in had a range of ideas about Yahoo's motives and said the action could simply be an effort to be open about the deal, it could be another effort to thwart Microsoft or it could be a pre-emptive step if the deal were to expand into European markets.

"I think they're being overly protective to make sure there's full disclosure and head off any EC inquiry and keep them at bay," said Anthony Sabino, professor of law and business at St. John's University in New York. "But the more I think about it, I'm getting suspicious."

Sabino said notifying the EC about its deal with Google could be another effort by Yahoo to fend off an acquisition attempt by Microsoft.

"Hypothetically, if Microsoft were to grab Yahoo, and there were still an outstanding contractual deal with Google, that would mean that Microsoft and Google are doing business, and I now see the method to their madness," said Sabino, noting that there is a clause in the agreement that allows Yahoo and Google to pull the plug on the deal if Yahoo were to be acquired by Microsoft.

"Yahoo would be saying to the EC, 'You see, Microsoft can't buy us out because that means that they're in cahoots with Google, and its anticompetitive.'"

Sabino said Yahoo may be counting on the European regulators, who have been critical of Microsoft in the past, to help drive a stake through the heart of any attempt by Microsoft to take over Yahoo.

"If nothing else, it creates a potential road block," Sabino said. "Part of mergers and acquisitions is throwing up silly defences that are not going to hold water, but they buy you time to get a better price or to discourage the acquirer. ... It's not a bad stratagem, but when you start doing that it shows you're getting desperate."

An EC spokesman did not respond to a request for comment.

Sabino and other antitrust experts also said Yahoo and Google could be laying the groundwork for expanding the deal into Europe if all goes well in the US and Canada.

"I think they want to make sure all their I's are dotted and their T's are crossed, so they can say they're bending over backwards to keep all the regulatory bodies involved," said John Byrne, an analyst at Technology Business Research.

While the deal only affects the US and Canada, European companies advertising in the US will be affected by it, Byrne said.

Byrne said he's not sure if any other major companies have taken a similar approach, but he said Yahoo's move seem "unique."

Paul Cuomo, an antitrust attorney at Howrey in Washington, agreed that it is unusual for a company to notify a regulatory body that doesn't have a direct impact on its business dealings. However, Cuomo said the situation is also unusual.

"The thing that's interesting is that it's so high profile, and I'm assuming the last thing Google and Yahoo, particularly Yahoo, want is any antitrust authority anywhere sticking its nose in and saying, 'We have a problem with what you're trying to do with Google,'" he said.

Even though there's no direct relationship in Europe today, the EC could be interested because there could be a spillover effect from the deal, where parties are working together in Area A, and are still competing in Area B, and there is the potential for the work in Area A to improperly affect competition in Area B, Cuomo said.

"I would expect that there's probably some anticipation by the European community antitrust authorities, who have been very interested in Microsoft, that this proposed transaction may not be the final transaction that reflects where Yahoo ends up at the end of the day," said C. Evan Stewart, an antitrust attorney at Zuckerman Spaeder.

"Wherever Yahoo ends up, there's going to be scrutiny by antitrust regulators, and I guess Yahoo just thinks they should have the [EC] involved sooner rather than later."

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