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Clock Ticking on Yahoo-Google Ad Pact

The clock is ticking on a regulatory review of Yahoo's ad deal with Google.

That may help explain why Yahoo's CEO, Jerry Yang, made the rounds in Washington on Wednesday. Yang met with key lawmakers to address growing concerns that the partnership could harm competition and threaten consumer privacy.

The Justice Department has already begun an official review of any potential antitrust implications of the deal, Gina Talamona, a spokeswoman for the department, told InternetNews.com.

Announced last week as Yahoo ended acquisition talks with Microsoft, the Yahoo/Google pact would place ads from Google alongside Yahoo's search results and throughout its network of sites. The non-exclusive arrangement leaves Yahoo the freedom to use ads from any other third party. The company also has full discretion over which ads it imports from Google.

For its part, Yahoo isn't shying away from the review; it voluntarily put the deal on hold so regulators could look it over. "We've been pretty clear about what it is and what it isn't," Yahoo spokeswoman Tracy Schmaler told InternetNews.com. "We are going to continue to invest in our search business."

Skeptical lawmakers worry that the Yahoo deal could give Google a stranglehold on the search market.

Yesterday, Rep. Joe Barton (R-Texas) issued a letter to Yang asking for responses to a series of detailed questions, including one that asked why allowing "Yahoo to run ads served by Google will not have an anticompetitive impact on the online search market, including the pricing of online search advertising." He asked for a reply by July 18th.

Consumer privacy is a pet issue for Barton. He has sent letters to Google asking for detailed information about its policies regarding sensitive information such as cookies, IP addresses and server logs, issues which he again inquired about in yesterday's letter.

Yang did not meet with Barton yesterday. Lisa Miller, a spokeswoman for the congressman, told InternetNews.com that representatives from Yahoo will meet with Barton's staffers next week. Miller said that Barton and Yang have no plans to meet, correcting recent media reports that wrongly reported the two would.

However, Yang did meet with Sen. Herb Kohl, the Wisconsin Democrat who chairs the Senate antitrust subcommittee. Kohl issued a statement the day the deal was announced warning of potential anticompetitive and privacy implications.

A Kohl staffer would not comment on the substance of the private meeting, but told InternetNews.com that the senator had "ongoing concerns" about the impact of the deal on the industry.

If those concerns persist, Kohl's committee might hold hearings on the issue.

Yang also met with Rep. Ed Markey (D-Mass.) and Senate Majority Whip Richard Durbin, (D-Ill.). A source familiar with Yahoo's thinking said hearings on the ad-pact are expected, but noted that the reaction among lawmakers has stopped well short of outright opposition to the deal.

Yahoo believes that its promise to remain a competitive force in search will be enough to convince lawmakers and regulators that the deal will not lead to monopolistic conditions, the source said.

Google has also been meeting with lawmakers to discuss the ad deal. Spokesman Adam Kovacevich said that the reaction had been generally favorable.

"Most legislators understand that this deal is non-exclusive and similar to arrangements in other industries where one company supplies a competitor with parts or technology," he told InternetNews.com. "We are confident that the agreement will actually enhance competition on the Internet."

Because they are not merging, the two companies do not need government approval for the deal to take effect. But they said they would put it on hold for three-and-a-half months for the Justice Department to review it.

Several nonprofit watchdog groups who often argue against high-profile business tie-ups have already spoken out against the deal.

But analysts at Stifel Nicolaus believe that regulators will be most concerned with the reaction from the companies engaged in search marketing. Many in the industry fear that the deal will eventually hollow out Yahoo's search advertising business, with the ultimate effect of raising prices.

This story was updated to include comments from Google.