The Channel Wire

December 04, 2008

The proposed advertising pact between Google and Yahoo came under fire almost immediately after it was announced. But Wednesday Sanford Litvack, a consultant for the Department of Justice's antitrust division, confirmed that Google pulled the plug on the proposed ad deal a scant three hours before the Department of Justice was going to file a claim.

Speaking to the AM LawDaily, Litvack confirmed that the Department of Justice was preparing to pursue legal action against Google.

"We were going to file the complaint at a certain time during the day," Litvack said. "We told them we were going to file the complaint at that time of day. Three hours before, they told us they were abandoning the agreement."

The complaint was never filed. But had it been, Litvack said the proposed ad merger between Google and Yahoo would have violated Sections 1 and 2 of the Sherman Act. Section 1 of the Sherman Act makes it illegal to restrain trade unreasonably; Section 2 makes it illegal for a company to monopolize or attempt to form a monopoly.

But the antitrust complaint wouldn't have been limited to just Google and Yahoo's proposed ad deal. In fact, Litvack said that complaint would have alleged that Google was functioning as a monopoly.

"It would have ended up also alleging that Google had a monopoly and that [the advertising pact] would have furthered their monopoly," Litvack said.

The DOJ planned on seeking an injunction from the court to attempt to halt the much maligned pact from moving forward while the legal process played out.

Ultimately, it was never needed because Google deep-sixed the deal before any legal action took place. The timing on Google's part was interesting. On Oct. 31, rumors surfaced that Google was considering walking away from the deal because of antitrust pressure from regulators. The next week Yahoo reworked the ad deal with Google, cutting the length of the deal from 10 years to two and reducing forecast profits from $400 million to $80 million.

The very next day, Nov. 5, Google officially walked away from the proposed deal, leaving Yahoo scrambling. As the projected ad revenue stream shriveled and died, Yahoo began a sharp decline.

Writing on the Google Public Policy Blog David Drummond, senior vice president, corporate development and Chief Legal Officer at Google, expressed disappointment but concluded that moving forward was important for Google.

"But we're not going to let the prospect of a lengthy legal battle distract us from our core mission. That would be like trying to drive down the road of innovation with the parking brake on," Drummond wrote.

That blog post from Drummond was the official end of the Yahoo-Google advertising deal. And according to Litvack, it turned out to be some fancy maneuvering that kept Google from coming up in the same sentence as one-time antitrust targets Microsoft and Ma Bell.

That move by Google seems to have disappointed Litvack, who was looking forward to taking on the case.

"Of course I was looking forward to it," Litvack said. "We felt pretty good about it, we felt pretty confident. Yeah, I would have liked to have done it."