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Trustbusters divided on next move on Google

Sources say there's sentiment inside the DOJ to file broader charges related to Google's dominance in search advertising. But that would be a tough slog with an uncertain finish.

Go big or go small.

That's the question facing lawyers from the U.S. Department of Justice investigating Google. Sources who have provided testimony to the government say a departmental debate revolves around whether antitrust regulators should challenge Google's proposed revenue-sharing deal with Yahoo, or go for the whole enchilada--and haul Google into court on broader charges related to its dominance in search advertising.

The latter tack would be the more ambitious--and fraught--choice. Ten years ago, the government prosecuted Microsoft for alleged antitrust violations, but ultimately settled the case in return for the company's agreement to make minor behavioral modifications.

"My sense is that they're considering something larger," said one source who met with DOJ lawyers. "They're finding that with the specifics of the Yahoo deal, it's difficult to create a set of proofs (around the case), such would satisfy a judge."

The source, who asked to remain unidentified, said investigators feel they have evidence to proceed, based upon received complaints from advertising executives regarding Google's influence.

"It's also control, from both an advertising and societal view," the source added. "There is growing concern about what happens if Google becomes the predominant gateway to information, if information passes through a single enterprise, characterized by a series of commercial algorithms that do what they do--and those algorithms are not subjected to outside review."

CEO Eric Schmidt: A court date in the offing?

That would come as a surprise to Google. Until now, the company says its conversations with government lawyers have focused strictly on the Yahoo ad deal. Yahoo expects that its 10-year Google ad search pact, signed in June, will raise revenue by $800 million in its first year and provide an extra $250 million to $450 million in incremental operating cash flow. The companies voluntarily agreed to postpone closing the deal until October to let the government complete its regulatory review.

So far, the sources say the government has not decided how--or whether--to proceed. A spokeswoman for the Justice Department declined to comment.

A Google spokesman declined to comment on the DOJ's possible next moves, but repeated the company's position that the Yahoo deal did not violate antitrust law.

Another source debriefed by antitrust lawyers said that a key question for the government is whether search should be considered a market unto itself, or a subset of the larger digital advertising space.

"They are definitely having a struggle around that issue," said the source, who similarly asked to remain unidentified. "If it is a subset of a market, then even if the search market would become unattractive, you could substitute another form of advertising. But if it is distinct, then you have a completely different issue.

"I've been clear in what I've said to them. My view is that anything that can be defined as a query is different from the rest of the advertising market--it's different from TV or direct mail, etc. There's something specific about someone typing a query in the search bar. The key issue is whether this partnership would allow Google to exercise undue influence over the search market. Would this further tip the balance toward creating monopolistic control over the search market?"

For its part, Congress is letting the DOJ carry the ball by itself. A staff member from the House Judiciary Committee said with just a few weeks left in this session, it's unlikely the committee will hold any further hearings on the matter.

Meanwhile, Sen. Arlen Specter (R-Pa.), minority leader on the Senate Judiciary Committee, similarly adopted a wait-and-see approach to the investigation.

"There is no doubt about the significant impact on the economy by an agreement between Google and Yahoo, the dominant companies in Internet advertising," he said. "This issue is being reviewed by both the Department of Justice and the Senate Judiciary Committee and it may be that the courts will have to decide whether there is a violation of antitrust laws."

Senator Orrin Hatch (R-Utah), the ranking member of the Senate's antitrust committee, said the question of whether the DOJ should intervene was a "moot point because Yahoo and Google submitted their proposal to the Department of Justice. I look forward, along with my colleagues on the Senate Antitrust Committee, to hearing the Justice Department's conclusions."

Stephanie Condon contributed to this story.