DOJ Lawsuit Threat Kills Google/Yahoo Ad Deal

After months of stalling and days of foreboding, Google’s search ad deal with Yahoo is kaput. Prompted by an antitrust lawsuit threat from the U.S. Department of Justice, Google this morning announced it will end the agreement to run some if its ads in Yahoo search results.

“The arrangement likely would have denied consumers the benefits of competition…lower prices, better service and greater innovation,” said Thomas O. Barnett, assistant attorney general in charge of the DOJ’s Antitrust Division in a statement. The Justice Department said the search firms “would have become collaborators rather than competitors for a significant portion of their search advertising businesses, materially reducing important competitive rivalry between the two companies. Although the companies proposed various modifications to their original agreement in an effort to address the Department’s antitrust concerns, the Department determined that such modifications would not eliminate the competition concerns raised by the agreement.”

The deal has been under investigation by the DOJ since July. “[A]fter four months of review, including discussions of various possible changes to the agreement, it’s clear that government regulators and some advertisers continue to have concerns about the agreement,” wrote Google SVP, Corporate Development and Chief Legal Officer David Drummond wrote on the firm’s Public Policy Blog today.

“Pressing ahead risked not only a protracted legal battle but also damage to relationships with valued partners,” he continued. “That wouldn’t have been in the long term interests of Google or our users, so we have decided to end the agreement.”

The DOJ went on to note that any need for “enforcement action” is eliminated as a result of the deal’s demise.

When the DOJ kicked its inspection into gear, it noted it would evaluate antitrust issues related to the agreement. Since then, the U.S. Congress has held hearings regarding the potential impact of the relationship on competition and consumer data privacy, while privacy advocates and business entities have publicly panned the deal.

In late August, Google CEO Eric Schmidt expressed confidence that the deal would go forward as planned in October.

“We’re of course disappointed that this deal won’t be moving ahead. But we’re not going to let the prospect of a lengthy legal battle distract us from our core mission,” said Drummond. “That would be like trying to drive down the road of innovation with the parking brake on.”

According to the DOJ, several other players were involved in the investigation, including the Canadian Competition Bureau and Attorneys General from 15 states such as California, Massachusetts, New York, and Texas.