The advertising deal between Google and Yahoo has come under scrutiny from the European Competition Commission, despite the careful structuring of the partnership to exclude a European market where regulators typically take a more aggressive stance against transactions that could harm competition.

An EU official told InternetNews.com that the "preliminary investigation" is examining "whether the deal could have any anticompetitive impacts in the European area, even though it is limited to the U.S. and Canada."

Launched in July, the European Commission's investigation is considering whether the tie-up of the two companies' search-advertising businesses in North America could have a ripple effect that would extend to other markets.

Through the partnership, announced in June, Google (NASDAQ: GOOG) would place a portion of the search ads alongside search results on Yahoo's (NASDAQ: YHOO) search engine, with the two companies sharing the revenue.

The Department of Justice and more than a dozen states have opened antitrust investigations into the deal. Google and Yahoo have pointed to the flexible structure of the nonexclusive deal, which does not stipulate how many ads Yahoo must import from Google. Both companies insist that they will remain vigorous competitors in many areas, including search and advertising.

Limiting the deal to the United States and Canada was widely seen as a move to ease the regulatory process.

"The agreement is limited in scope to Yahoo's U.S. and Canadian Web sites, and it will not have any significant effect on Europe," Google spokesman Adam Kovacevich said. "We are of course cooperating with the Commission and are confident that they will reach the same conclusion."

Yahoo also said that it was working with the relevant regulators, and the EU official said that both companies had been cooperative.

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Newspapers protest Google/Yahoo deal

The revelation that Europe is reviewing the deal follows a strongly worded protest from the World Association of Newspapers (WAN), a Paris-based trade group that represents more than 18,000 newspapers around the world.

"Google and Yahoo today are the two leading suppliers of content ads and syndicated search ads to online news sites, and they compete intensely for that business," the group said in a statement. "This competition forces each company to offer the best possible terms and helps ensure that newspapers earn a fair market return for the right to display ads and search boxes on their sites."

WAN added, "The proposed deal will fatally weaken Yahoo as a competitor for these deals."

Joe Sturm, CEO of the Newspaper Association of America (NAA), quickly put out his own statement: "While NAA is a member of the World Association of Newspapers, I would like to clarify that the NAA board of directors has taken no position on the proposed advertising partnership between Google and Yahoo."

Because they are not merging, the two companies did not require regulatory approval to implement the partnership, but they volunteered to put it on hold until the beginning of October to accommodate a review. The Justice Department has brought in a top antitrust lawyer to advise the investigation, and is believed to be considering whether to litigate to against the ad deal.