Microsoft finds new antitrust scrutiny

In a statement released shortly after the bid was made public, Sen. Herb Kohl, chairman of the Senate Antitrust Subcommittee, said, "We will need to scrutinize the deal carefully to insure that it will not cause any harm to the competitiveness of what has been a vibrant high tech marketplace, nor negatively impact the privacy rights of Internet users."

In addition, the Associated Press quoted a Justice Department spokeswoman as saying the agency will look into the competitive consequences of combining the companies, which together own about 32% of the U.S. search market. A department spokeswoman didn't immediately respond to a request for comment.

Such scrutiny is to be expected for any large deal involving Microsoft (MSFT:30.45, -2.15, -6.6%) , said Mark Ostrau, an antitrust attorney with Fenwick & West LLP in Mountain View, Calif.

Microsoft settled a Justice Department antitrust case in 2002, and remains under supervision in a Washington court as part of a related consent decree.

Earlier this month the European Commission announced the launch of two fresh probes into the company's competitive behavior, focusing on its Office and Internet browser software.

"Any time I'm asked to analyze a potential deal for a client with Microsoft, and handicap the level of [antitrust] review, I always say, 'You have to add the Microsoft factor'," Ostrau said. "Just about anything Microsoft does gets a close eye, and not without reason."

Microsoft's Windows software provides the digital framework for most PCs sold in the world, while its Office software dominates its respective market. That raises questions about any of Yahoo's extensive technology that could be pulled into either system and shut out competitors, Ostrau said.

Microsoft's bid for Yahoo (YHOO:28.38, +9.20, +48.0%) is widely seen as an effort to bolster competition with mutual rival Google Inc. in the online search and advertising markets. Google (GOOG:515.90, -48.40, -8.6%) has faced its own antitrust scrutiny over its pending acquisition of online advertising company DoubleClick, both here and in Europe.

"As in our recent examination of the Google-DoubleClick deal, we will need to investigate how this combination affects consumers, advertisers and businesses who increasingly use the Internet," Kohl said in his statement.

Ostrau speculated that should Microsoft succeed in buying Yahoo, the matter could get pulled into the consent decree that has Microsoft regularly reporting to a court on its competitive behavior. The decree was recently extended to November 2009, thanks to the efforts of a group of states led by New York.

However Jay Himes, the antitrust chief at the New York Attorney General's Office, said, "The consent decree and the Microsoft offer to buy Yahoo are entirely separate."

Edward Henneberry, co-chair of law firm Heller Ehrman LLP's European Practice Group with a focus on antitrust, said a combination of Microsoft and Yahoo could actually be presented by the companies as a boon for competition in the online advertising market, because it's currently dominated by Google.

"The case for them is they need the sufficient scale to compete with Google, and that'll be good for competition," Henneberry said. "This is going to get reviewed by agencies in the U.S. and Europe, and no one's thinking it won't be, but I wouldn't put any great note on that."

One of the complaints raised about the Google and DoubleClick merger was the large aggregation of user data that would be housed under one roof, theoretically making it more vulnerable to misuse. Such user data is collected by Internet firms to better target advertising.

Jeff Chester, executive director of the Center for Digital Democracy, which has opposed the Google and DoubleClick merger on privacy grounds, objected to Microsoft's bid for Yahoo.
A written statement from Chester said, "In an online era dominated by digital behemoths, consumers will be more vulnerable to having their personal information become the property of the GoogleClicks and Microhoos."