U.S. May Be Preparing Antitrust Suit in Google-Yahoo Partnership

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The hiring of a veteran antitrust lawyer represents the clearest indication that the Justice Department could be planning to mount a legal challenge to the deal, some analysts said.

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U.S. May Be Preparing Antitrust Suit in Google-Yahoo Partnership

SAN FRANCISCO — Is the Justice Department preparing to challenge a high-profile advertising partnership between Google and Yahoo?

That was the question being debated from Washington to Silicon Valley on Tuesday, after the Justice Department, which has been reviewing the partnership for several weeks, hired Sanford M. Litvack, a veteran antitrust lawyer, to help assess the evidence gathered by its lawyers.

The hiring of an outside lawyer like Mr. Litvack is rare and represents the clearest indication that the Justice Department could be planning to mount a legal challenge to the deal, some analysts said. “They wouldn’t bring in a special counsel unless they were preparing to litigate,” said Sam Miller, a partner at Sidley Austin in San Francisco who acted as a special trial counsel in the department’s first antitrust case against Microsoft.

But other experts said that a challenge to the agreement was far from certain, noting that Mr. Litvack would most likely want to weigh the evidence himself before deciding whether to bring a suit.

And they said that the Justice Department was unlikely to mount a broader case to challenge Google’s growing power in Internet advertising. People close to the review, who asked to speak on condition of anonymity because they were not authorized to discuss it, said that questions from Justice Department lawyers had been narrowly focused on the search advertising market and the terms of the Google-Yahoo deal.

Under the agreement, which was announced in June after merger talks between Microsoft and Yahoo collapsed, Google will sell ads alongside some Yahoo search results on some of its Web sites. The deal has been opposed by Microsoft and some advertisers, who fear it will reduce competition in the search advertising market, which Google dominates, and lead to higher prices.

On Sunday, the Association of National Advertisers, which represents major marketers, asked the Justice Department to block the deal. Two other industry trade groups, the American Association of Advertising Agencies and the International Advertising Association, have expressed concerns about the deal and asked the Justice Department to investigate. But other large associations, including the American Advertising Federation and the Interactive Advertising Bureau, said on Tuesday that they were not taking a position on the deal.

The A.N.A.’s opposition to the deal would probably be seriously considered by the Justice Department, as the real concern of antitrust law is to protect consumers, in this case advertisers, said Mr. Miller, the former Justice Department special counsel.

Despite the opposition to the deal, some legal experts suggested that the appointment of Mr. Litvack, who has a reputation for independence, might simply be an effort by the Justice Department to deflect any political fallout from its ultimate decision. He served as the Justice Department’s top antitrust lawyer in the administration of President Jimmy Carter.

The Justice Department has been criticized by some in Congress for its approach to antitrust enforcement. “The Justice Department is looking for political cover one way or the other,” said Jeff Chester, executive director of the Center for Digital Democracy, a public interest group that has opposed the deal. “That’s clearly what’s Sandy’s role is here.”

Mr. Litvack, the former vice chairman of the Walt Disney Company, recently left Hogan & Hartson, where he was a partner, to join the Justice Department, a spokeswoman for the law firm said on Tuesday. The Justice Department refused to confirm Mr. Litvack’s appointment. Two people with knowledge of the investigation, who spoke on condition of anonymity because they were not authorized to discuss it, confirmed the appointment, which was first reported late Monday by The Wall Street Journal.

Google and Yahoo have said their deal does not violate antitrust law. The companies voluntarily agreed to postpone putting it into practice for three and half months to give regulators time to scrutinize it. Eric E. Schmidt, Google’s chief executive, recently said that the companies were planning to go forward with the deal next month, even if it hadn’t been cleared by regulators by then.

Google and Yahoo both declined to comment on the antitrust review. Both companies said it would be premature for regulators to block the deal before it was completed.

If the deal is blocked, the fallout for Google will be strategic, said Benjamin Schachter, an analyst with UBS Securities.

Yahoo has said that the agreement will bring it an additional $250 million to $450 million in operating cash flow in the first year.

The fallout of a deal being blocked would be financial and immediate, Mr. Schachter said. Yahoo shares, which are at a five-year low, could drop even further, leaving the company vulnerable to a new bid from Microsoft, or from another party, Mr. Schachter added.