Hope for Google-Yahoo Ad Deal Fades

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As The Deal reported last week, Yahoo! Inc. (YHOO) and Google Inc. (GOOG) are considering abandoning their proposed advertising alliance, according to a report in the Wall Street Journal.

"The option to scrap the deal has been on the table before, but Google in particular has begun considering it more seriously recently as talks with the Justice Department haven't progressed," the paper says. "One sticking point has been the Justice Department's discussion of having the companies sign a consent decree enforcing the terms of the search partnership. By doing so, the parties would be subjecting their compliance with the agreement to ongoing oversight by a judge."

The Justice Department's antitrust division has put up a surprisingly vigorous fight against the deal, given its lax enforcement record. My guess is that the steel in DOJ's spine isn't Assistant Antitrust Attorney Tom Barnett, who since late 2005 has presided over the antitrust division as it has waved through one merger after another, but rather department staff auditioning for a job under the next administration.

It's also hard not to see the hand of Microsoft Corp.'s chief legal bulldog on the case, Cadwalader, Wickersham & Taft LLP partner Rick Rule, who has called the Google-Yahoo! pact "per se illegal." Rule is himself a former AAG for antitrust (a Reagan appointee). Current DOJ Deputy Assistant Attorney General Deb Garza was once his special assistant, while Barnett and Rule were colleagues at law firm Covington & Burling LLP (Garza and another Barnett lieutenant, David Meyer, were also at Covington at the time.) Seems like Microsoft knew what it was doing when it put him on the case. --Alain Sherter