California AG weighs investigation of Internet powerhouses

Legal News Line Sep. 10, 2008, 1:40pm

SAN FRANCISCO (Legal Newsline) -- Scrutiny of potential partnerships between Internet giants Yahoo and Google ramped up Tuesday with news that the U.S. Justice Department has hired a powerhouse outside litigator and California Attorney General Jerry Brown is considering his own investigation.

The San Francisco Chronicle reported that the attorney general's office is reviewing documents related to an advertising partnership between the No. 1 and No. 2 search engines on the Web. Brown's office told the Chronicle he has taken no formal action at this time.

The Wall Street Journal reported that former Disney Vice Chairman Sanford Litvack, "one of the nation's best known litigators" has contracted with the Justice department "for a possible antitrust challenge to Google Inc.'s growing power in advertising."

Further ominous news for the Internet giants came Wednesday morning when Bernstein Research analyst Jeffrey Lindsay wrote that it looks "increasingly likely" regulators will delay the proposed advertising deal that Google and Yahoo reached in June, and downgraded the price of Yahoo stocks accordingly.

The deal between Google and Yahoo would allow Google to sell ads on Yahoo's Web sites in return for shared revenue. The deal believed to be worth as much as $800 million a year. The deal is a source of constant criticism that the two companies would have too much power over Internet advertising, could control ad rates and could collect far too much information about Web users.

Brown's involvement follows a request for an investigation into the deal sent last month from state Assemblyman Joel Anderson, R-San Diego.

"We're talking about giving them over 90 percent of the market share - nobody else on the Web has a database like that," Anderson wrote. "Who can compete?"

The attorney general's office is reportedly reviewing documents made available to them by the Justice department, in preparation for a possible investigation. Other state attorneys generals are also considering an investigation, according to published reports.

After Yahoo Spokeswoman Tracy Schmaler confirmed the Justice Department's hiring of Litvack, the Justice department's antitrust chief under former President Jimmy Carter, news reports across the country suggested a looming showdown between the government and Google Chief Executive Eric Schmidt, who in August said the advertising deal would take effect in October despite the Justice department's concerns.

Google delayed the launch for three and half months to allow the government time to review the deal.

"We think it would be premature for regulators to halt the agreement before we implement it and everyone can judge the actual impact," said Adam Kovacevich, Google's senior manager of global communications and public affairs in Washington, D.C. "We are confident that the arrangement is beneficial to competition."

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