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Yahoo has escape clause in Microsoft search deal

Yahoo has reserved the right to terminate its search deal with Microsoft, if it doesn't maintain an unspecified amount of revenue per search and query market share.

If Microsoft falters as the exclusive provider for search on Yahoo's network of Web sites--when benchmarked against Google--Yahoo can back out of the deal.

Yahoo has the right to terminate the deal signed last week, "if the trailing 12-month average of the (revenue per search) in the United States (the "U.S. RPS") of Yahoo and Microsoft's combined queries falls below a specified percentage of Google Inc.'s ("Google") estimated RPS measured on a comparable basis or if the combined Yahoo! and Microsoft query market share in the United States falls below a specified percentage," according to a document filed with the U.S. Securities and Exchange Commission.

That should calm worries among a few of those who felt that with the deal, Yahoo's fortunes in the lucrative search-ad market were tied to the performance of Microsoft's search technology for a decade, which is more like a century in Internet years.

Yahoo and Microsoft had a combined U.S. query market share of 28 percent in June, compared to Google's 65 percent, according to ComScore. When it comes to revenue per search, according to Microsoft estimates spotted by the Associated Press, Yahoo was earning 4.3 cents in revenue per search, and Microsoft was earning 3.9 cents, while Google was earning 7 cents in revenue per search.

As might be expected, Yahoo declined to comment on the exact number for revenue per search or market share that would trigger the escape clause. Microsoft is planning to guarantee Yahoo's revenue per search for 18 months following the completion of the deal, so this clause would likely come into play following that period and prior to the five-year anniversary, when Yahoo can also re-evaluate whether it still likes the deal, based on its revenue per share viewed against Google's.

A few other details came out in the SEC filing:

• Microsoft is required to hire at least 400 Yahoo engineers and pay them "market-competitive compensation packages."

• The two companies have agreed to a "limited, nonexclusive" patent cross-licensing deal.

• All details must be hashed out by October 27, or the disputes will be taken to an arbitration panel.