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States Join Google-Yahoo Ad Deal Scrutiny

Now, it's the states' turn to shine a light on the Yahoo/Google alliance.

Several states' attorneys general have opened reviews of Yahoo's (NASDAQ: YHOO) advertising partnership with Google (NASDAQ: GOOG). The move adds a new regulatory wrinkle to a deal that has already drawn scrutiny from lawmakers and the Department of Justice.

InternetNews.com has confirmed that the attorneys general of Florida and Connecticut are among the states participating in the coordinated effort, which includes about a dozen states, according to a recent report in The Washington Post.

"We have begun an investigation and we've issued a number of subpoenas under our antitrust authority," Connecticut Attorney General Richard Blumenthal told InternetNews.com. Blumenthal would not say how many states have joined the effort, but pegged the number at "between 10 and 15." He said that the companies involved have been "cooperative."

Sandi Copes, spokeswoman for Florida's attorney general, told InternetNews.com that the office is "reviewing the proposed transaction in conjunction with a multistate group and the Department of Justice."

Copes said that no one state is leading the effort, but would not comment on the composition of the group.

At issue is Yahoo's agreement to outsource a portion of its search-advertising business to Google. Opponents warn against an alliance of two companies that together control about 90 percent of the search market.

Since they are not merging, the companies do not require regulatory review for the parternship to take effect, but they voluntarily put the deal on hold for three-and-a-half months to accommodate a DoJ review.

The impetus for the deal was of course the intense pressure from Microsoft, which has been trying to acquire some or all of Yahoo in various deal scenarios. That pressure has only intensified with the involvement of Carl Icahn, the billionaire investor who is trying to oust the company's board to engineer a transaction with Microsoft.

In April, Yahoo and Google conducted a limited two-week trial, where Google would handle a small portion of Yahoo's search ads. Even that limited partnership elicited warnings from officials at both the federal and state level.

"In the event this relationship becomes permanent, my office will closely monitor its effects," Washington Attorney General Rob McKenna said in response to the two companies' April ad trial. A McKenna spokewoman declined to comment, citing a confidentiality policy regarding ongoing reviews common to many states' attorneys general.

Then, too, not all states that have raised questions about the deal have joined the formal review with the DoJ.

"We are looking into it and considering joining the multistate effort, but at present we have not joined," Gabe Holmstron, a spokesman for the Arkansas Attorney General's office, told InternetNews.com.

Google declined to comment on the states' review beyond a statement e-mailed to InternetNews.com.

"Just as we are continuing to have cooperative discussions with the Department of Justice about this arrangement, we voluntarily reached out to state attorneys general to explain the deal when we first announced it," the company said. "We continue to have discussions with them about the agreement."

Yahoo did not respond to requests for comment.

Yesterday, the Senate and the House of Representatives held hearings on the impact the deal could have on the online advertising market. The lawmakers got an earful from Microsoft, which charged that the deal would solidify Google's dominance in the market, drive up prices for advertisers and threaten consumer privacy.

The ad partnership, which is nonexclusive and allows Yahoo the flexibility to use as many or as few of Google's ads as it chooses, was clearly crafted with regulators in mind.

Both Google and Yahoo maintain that by improving Yahoo's ad operations, it will ultimately strengthen competition between the two companies and benefit consumers and advertisers.

Then again, the rhetorical flourish on both sides of the debate could end up a moot point if Icahn wins his proxy war at Yahoo's annual meeting Aug. 1.