Microsoft Confers With EC on Yahoo Deal

Microsoft Wednesday confirmed it is in talks with the European Commission (EC) regarding its proposed search-for-advertising deal announced earlier this summer with Yahoo.

On July 29, when the two search engine also-rans announced they would combine resources in order to take on search behemoth Google (NASDAQ: GOOG), the companies’ top lawyers said that regulatory approval would be required.

“We look forward to moving forward very quickly to provide information to the antitrust authorities in Washington and Brussels [capital of the European Union (EU)] and in other places around the world,” Microsoft (NASDAQ: MSFT) General Counsel Brad Smith said on the conference call announcing the deal.

At that time, Smith said he expected to begin the filing process in Washington the first week in August.

Meanwhile, the EC — the executive branch of the EU — shut down as part of its annual summer break for the month of August.

“[We] can confirm we’ve been talking to the EC, just as we said we would when we announced the agreement,” Jack Evans, a Microsoft spokesperson, said Wednesday.

“The agreement itself calls out that it must be reviewed in the U.S. and Europe before it can proceed. Those discussions in both geographies continue, and we remain hopeful the deal will close in early 2010,” Evans added.

Without proper regulatory approval on both sides of the Atlantic, the deal will likely be dead on arrival.

The DoJ looks it over

Last Friday, Microsoft confirmed it has already begun the process with the U.S. Department of Justice (DoJ).

Prior to announcement of the deal, under which Microsoft would provide its Bing search technology to Yahoo’s sites and share in the revenues, the software giant and Yahoo (NASDAQ: YHOO) were less than friends.

Microsoft CEO Steve Ballmer spent six months trying to first, buy Yahoo outright, and then, to just try to acquire the smaller company’s search business. Finally, in July, Ballmer struck a deal with Yahoo’s new CEO Carol Bartz.

A combination of the two company’s resources could give Microsoft’s Bing search engine some 28 percent of overall U.S. searches compared to Google’s 64.7 percent — using July figures from Web analytics firm comScore.

A call to Yahoo was not returned by press time. Additionally, the EC’s competition directorate spokesperson did not respond to an e-mail by press time.

No matter how discussions with the EC go, however, it seems likely that the deal will be controversial, given the long-running animosity of the EC’s competition directorate towards Microsoft.

The software titan has been negotiating for months trying to find a successful conclusion to its contretemps with the EC over its bundling of Internet Explorer (IE) with Windows since 1996. Beginning with a complaint that the practice is anticompetitive in 2007 by Norwegian browser maker Opera, the EC is reportedly very close to resolving that case — which may result in an extremely expensive fine for Microsoft.

Most recently, Microsoft and the EC have been working towards all new PCs sold in the EU having a so-called “ballot screen” where users can choose from a range of browsers and not just default to IE.

That may solve Microsoft’s immediate problem but it is not likely to keep the EC from heavily fining the company as it did in 2007 in a similar case regarding bundling of Windows Media Player and withholding technical documentation from Microsoft’s competitors.

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