We and others wondered why Google’s stock tanked today. Now we have another factor to add to the list.
Wall Street Journal: The Justice Department has secretly hired one of the nation’s best-known litigators, former Walt Disney Co. Vice Chairman Sandy Litvack, for a possible court challenge to Google Inc.’s growing power in advertising.
Mr. Litvack’s hiring is the strongest signal yet that the U.S. is preparing to take antitrust action against Google and its advertising deal with Yahoo Inc.
This news isn’t likely the whole reason Google’s stock was down, because it’s more negative for Yahoo than Google, and Yahoo’s stock was flat. But in any event…
For weeks, U.S. lawyers have been deposing witnesses and subpoenaing documents to support a challenge to the deal, lawyers close to the review said. Such efforts don’t always mean a case will be brought, however.
Mr. Litvack, who was the Justice Department antitrust chief under President Carter, has been asked to examine the evidence gathered so far in the federal review of Google’s pending deal with Yahoo, and to build a case if a decision is made to proceed, the lawyers close to the review said.
It isn’t clear whether a U.S. challenge would target the Google-Yahoo deal alone or take on broader aspects of Google’s conduct in the growing online-advertising business. The agreement with Yahoo, announced in June, gives Google the right to sell search and text ads on Yahoo sites, sharing revenue with Yahoo.
As the WSJ goes on to observe, this development could have significance far beyond the specific Google-Yahoo deal. Google has now become so dominant that it is triggering the same knee-jerk anti-competitive sentiment that Microsoft once did.
Even if the Justice Department backs off the Google-Yahoo deal, therefore–or Google fights the case and wins–the increased Justice Department focus will likely lead to:
- greater scrutiny, especially as Google moves into new businesses
- more complaints
- more litigation (and litigation risk)
- possible reputational backlash
With respect to the Google-Yahoo deal, moreover, Google continues to take a hard line, saying it intends to go ahead with the deal regardless of what the Justice Department does. This could be posturing, but we doubt it. (Puffing out your chest at this stage of the game isn’t the best way to win support). More likely, it means that, if challenged, Google intends to litigate.
Barring an immediate injunction, litigation would not likely affect the Google-Yahoo partnership immediately. But it’s possible that, over the long-term, the Google-Yahoo deal would have to be scaled back or scrapped.
Could Microsoft’s intense lobbying be having any effect on the Justice Department’s thinking here? Certainly reasonable to think so. If Microsoft hated Google before Google helped break up Microsoft’s play for Yahoo, the loathing has only increased. And, of course, breaking up the Yahoo-Google deal would help Microsoft in two ways: one, competitively, and, two, in its desire to eventually buy all or pieces of Yahoo.
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