The Other Side Of Trust - US Government and yahoo deal

Courtesy Outlook: 18 Feb,2007
Microsoft's unsolicited bid to purchase Yahoo has raised a key question for antitrust regulators: Does the deal bolster competition on the Internet?

Microsoft hopes to wrap up the $44.6-billion deal by the end of the year. Antitrust experts say the Redmond-based company has its eye on the political calendar—US president George Bush's term in office ends on January 20, 2009. Republicans have historically been inclined to favour mergers and Bush's administration is the same. Should Bush's Republican appointees decide the fate of this case, analysts expect a ruling in Microsoft's favour. But if a Democrat is sworn in as president, it could dash Microsoft's plans.

Robert H. Lande, who teaches antitrust law at the University of Baltimore, says it is not clear whether the deal can pass antitrust muster. If it is not reviewed by January 20, 2009, Lande points out "there will be a new group of enforcers—or at least there could be if the Democrats are elected and they are likely to be more aggressive. They won't trust the review done by Republicans and would want to start over." Members of the US Congress have said they want to conduct hearings into Microsoft's offer. But the final decision will be made by two antitrust enforcement agencies—either the Federal Trade Commission, or the Antitrust Division of the Justice Department.

The "incipiency doctrine" in merger law directs regulators to stop mergers "where the effect may be substantially to lessen competition or to tend to create a monopoly." However, it is not always interpreted thus. Karsten Weide, program director at idc, says if Microsoft purchases Yahoo, it would increase competition as the new entity can better compete with Google. He predicted regulatory problems are not likely. But Lande worries that the existing "three vigorous search engines, three competitors" will be whittled down to two, which will reduce competition and result in less choice for consumers.

Finally, Google has joined the debate. "This is...about preserving the Internet's underlying principles: openness and innovation," wrote David Drummond, Google's chief legal officer. Antitrust regulators will wrestle with these very issues in the coming months.