Google dropped Yahoo! ad deal hours before litigation

Google abandoned its search ad deal with rival Yahoo! just three hours before the US Department of Justice (DOJ) was due to file an antitrust lawsuit alleging Google has a monopoly on the online ad market, claims a lawyer involved in the proceedings.

Sanford Litvack, the attorney hired by the government to act as lead counsel in the event of a court case, says the DoJ drew up complaints on two charges and would have sought an injunction to stop the deal going ahead.

The case would have accused the firms of violating sections 1 and 2 of the Sherman Act. These ban deals that restrict trade unreasonably and prohibit a company from monopolising or attempt to monopolise trade.

"It [the case] would have ended up also alleging that Google had a monopoly and that [the ad deal] would have furthered their monopoly," Litvack says, speaking to the American Lawyer Daily.

"We were going to file the complaint at a certain time during the day. 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," Litvak adds.

In a statement released last month, the DoJ claims the ad agreement would have given Google and Yahoo! 90% of the search ad market. It also says the deal would have denied web customers the benefits of competition, lower prices and better service.

Google opted to drop out of the deal, rather than defend itself in court, in a case Litvack claims the DoJ felt "pretty confident" about the case. The deal, which would have seen Google display ads next to Yahoo! search results, was designed to earn Yahoo! between USD250m and USD450m in incremental operating cash flow in the first year.

Google and Yahoo! agreed terms in June 2008, and initially planned to launch the partnership by the beginning of October. The DoJ investigated the deal because a number of firms, including Microsoft, lobbied against it.

Yahoo! turned down a USD44.6bn takeover offer from Microsoft in May this year. Recently, Microsoft CEO Steve Ballmer revived persistent rumours that the software giant hopes to sign a search ad deal with Yahoo! when he said his firm was "very open" to such an agreement.