Politics and Law

The U.S. Department of Justice has furthered its investigation into the proposed search engine deal between Microsoft and Yahoo by asking both companies to provide more information.

The two companies received an additional request for information earlier this week as expected, Microsoft spokesman Jack Evans told CNET News. He said he couldn't reveal the specifics of the request, citing it as a confidential inquiry from the Justice Department. But he said Microsoft is in the process of providing the requested information.

Yahoo spokesman Adam Grossberg also confirmed to CNET News the Justice Department's request. He couldn't comment on the specifics either but added that Yahoo is cooperating fully.

"We confidently believe the information we'll provide will confirm that the deal is not only good for Yahoo and Microsoft, but also good for advertisers, publishers, and, ultimately, consumers," said Grossberg.

The request for additional information doesn't come as a surprise to either Microsoft or Yahoo.

Under the Hart-Scott-Rodino Act, mergers or other business deals that meet certain requirements must be reviewed by the government before they can close. Companies have to file the necessary paperwork with the government and then wait 30 days before given clearance to move forward. In some cases, the government requests additional information before making a decision.

Both Microsoft and Yahoo were anticipating a close review of the deal given its scope, said Evans. At a press conference when the deal was announced, the companies said the review would be a matter of months, not weeks, taking it through the fall.

Despite the Justice Department's request for more details, both Microsoft and Yahoo are hopeful the deal will close as expected in early 2010.

Still, the Justice Department is only one battle. The agreement may also require regulatory clearance by the European Commission, which has been tough in its current probe of Oracle-Sun and in past probes of both Intel and Microsoft. Microsoft is currently trying to determine what formal notification, if any, needs to occur in Europe.

But a Microsoft-Yahoo search combination may be seen as less of a competitive threat in Europe where Google enjoys a 90 percent share of the search engine market versus its U.S. share, which ranges anywhere from 63 percent to 72 percent based on recent estimates.

Yahoo and Microsoft announced the deal in July, under which Bing's search engine technology would power Yahoo Search, and Yahoo would sell ad space next to search results, with the two companies splitting the sales.

The Obama administration has sided with the recording industry in a copyright lawsuit against an alleged peer-to-peer pirate, a move that echoes arguments previously made by the Bush administration.

A legal brief filed Sunday in a case that the Recording Industry Association of America is pursuing in Massachusetts argues that federal copyright law is not so overly broad and its penalties not so unduly severe that they count as "punitive." Current law allows a copyright holder to receive up to $150,000 in damages per violation.

The brief says "the harms caused by copyright infringement" on the Internet include limiting "a copyright owner's ability to distribute legal copies of copyrighted works. The public in turn suffers from lost jobs and wages, lost tax revenue, and higher prices for honest purchasers of copyrighted works."

The Obama administration's choice to intervene in the Massachusetts lawsuit comes after the Bush administration joined the RIAA's lawsuit against Jammie Thomas. It, too, defended the constitutionality of the statute--one of the Justice Department's duties--that a jury decided Thomas had violated. (Thomas has been awarded a new trial.)

The Massachusetts case could prove to be an important one. A group of Harvard law school students, with the help of Harvard law Professor Charles Nesson, is providing defendant Joel Tenenbaum with an aggressive legal defense. They aim to convince the courts that the law the RIAA relies on is so Draconian it amounts to "essentially a criminal statute" and is therefore unconstitutional; that it grants too much authority to copyright holders; and that it violates due process rights guaranteed by the U.S. Constitution.

Those are the arguments that the Justice Department is attempting to refute. Its brief says that while the administration "does not address" the nonconstitutional arguments, "if the court finds it necessary to reach the constitutional questions at this time, then it should reject each of defendant's constitutional claims."

It adds: "The remedy of statutory damages for copyright infringement has been a cornerstone of our federal copyright law since 1790, and Congress acted reasonably in crafting the current incarnation of the statutory damages provision. Congress sought to account for both the difficulty of quantifying damages in the context of copyright infringement and the need to deter millions of users of new technology from infringing copyrighted works in an environment where many violators believe that their activities will go unnoticed."

Until recently, a top Justice Department official was representing the RIAA in the Massachusetts case. In early January, Barack Obama picked Tom Perrelli for associate attorney general; he was listed as a "lead attorney" for the RIAA in the case and had filed a formal notice of withdrawal less than two weeks earlier.

On February 4, Obama picked as associate deputy attorney general Donald Verrilli, who represented the RIAA in the Jammie Thomas case. Verrilli didn't file a motion to withdraw from the case until last week.

Google CEO Eric Schmidt speaking at the Democratic National Convention in Denver two weeks ago.

(Credit: Declan McCullagh/CNET News)

About this time a decade ago, Google CEO Eric Schmidt was praying that the U.S. Justice Department would file an antitrust lawsuit against Microsoft.

"I've competed against Microsoft for years, but I never quite appreciated how big Microsoft has become, not just as a company, but as a brand and as part of the national consciousness," Schmidt said in 1998, four months before the suit was filed. "It's the products, the Microsoft marketing juggernaut, Bill Gates's wealth, all those magazine cover stories. It's everything."

That was when Schmidt was the chief executive of Novell, a Microsoft archrival that alleged anticompetitive activities and eventually filed its own private antitrust lawsuit.

Now the situation is reversed. Instead of competitors urging the Justice Department to pounce on Microsoft, the onetime monopolist (and its allies) are wielding the political process to hamstring Google. And Microsoft's position in the 1990s as the innovative West Coast company that captured the public's imagination -- with a wealth of new products, sappy magazine cover stories, and newly minted riches -- has been largely usurped by Google.

There are differences, of course: Google is only 10 years old today, while Microsoft was 23 years old when federal authorities decided to mount what ultimately proved to be an unsuccessful effort to carve it up into more manageable pieces. In addition, the Web makes switching away from a search engine or an advertising platform much easier than ditching Windows for a Mac or Linux; any network effects are far weaker than they are in the software world.

And Google says, as you might expect, that there's no reason for the feds to investigate its Yahoo advertising deal on antitrust grounds. The company provided CNET News with a statement on Tuesday saying: "While there has been a lot of speculation about this agreement's potential impact on advertisers or ad prices, we think it would be premature for regulators to halt the agreement before we implement it and everyone can judge the actual impact. We are confident that the arrangement is beneficial to competition, but we are not going to discuss the details of the regulatory process."

Yet the similarities are nevertheless striking.

File photo: Microsoft's adversaries speak to reporters in front of the federal courthouse during antitrust trial. Will Google be next?

(Credit: Declan McCullagh/mccullagh.org)

In 1998, the Justice Department hired David Boies, a high-profile litigator who had founded his own law firm a year before, to be its lead trial counsel. In 2008, the government has hired Sandy Litvack, a high-profile litigator who recently left a law firm, according to a report in Tuesday's Wall Street Journal.

Microsoft's enemies used shady tactics, including hiring investigators to dig through the trash of pro-Microsoft groups in Washington, D.C. Today Google's enemies are using shady tactics, including hiring D.C. groups to plant articles and engage in a so-called astroturf campaign against the search company.

A decade ago, Microsoft had spread little money around Washington political circles: its political action committee handed out only $212,000 to politicians in the 1998 election cycle, a sum that leaped to $1.2 million by the time the antitrust trial was over. Similarly, Google's PAC spent only $156,936 in political favor-buying this election cycle, compared with, say, $3.8 million by AT&T.

To be sure, Google denies any allegation that its pending advertising deal (or any other activities) will impinge on competition. David Drummond, the company's top lawyer, told a Senate committee in July that the Yahoo advertising deal "will maintain and expand that competition," and co-founder Larry Page told a Washington audience that Google is in favor of openness and competition.

They may honestly believe that a lawsuit is unlikely. And it's true that no lawsuit may ever be filed. But many executives at Microsoft and a long list of antitrust defendants -- including American Airlines, Archer Daniels Midland, Bayer, Kimberly-Clark, Texas Instruments, Sony, and Visa -- probably felt the same way right up until they were served with a copy of the federal complaint.

The way the political establishment of the East Coast treats the technology firms of the West Coast in some ways resembles a shakedown racket: Tech firms and their CEOs are viewed as rich sources of untapped revenue for politicians. (It would be a shame if something happened to that nice, shiny search engine you've got there, wouldn't it?)

AT&T (itself once broken up by a federal antitrust action) has a larger market capitalization than Google, with the lion's share of U.S. DSL customers, and grew by gluing together former Ma Bell assets including Southwestern Bell and BellSouth. But thanks to its generous political giving (or, more charitably, a genuine confluence of ideologies), AT&T's mergers have won the applause of Republicans including Rep. Joe Barton of Texas, who personally lobbied the Federal Communications Commission to "act expeditiously on the AT&T-BellSouth application so that consumers will have an opportunity to reap the benefits."

When it comes to Google, though, Barton is an antitrust enthusiast. He repeatedly assailed the DoubleClick merger. He publicly complained that his aide had received a "chilly response" when trying to arrange a visit to the company's Mountain View, Calif. headquarters. One reason for this animus, perhaps, is that Barton opposed extensive Net neutrality regulations and has received millions from like-minded telecommunications companies; Google was on the other side.

This not only provides political cover to the Bush administration; it's also an indirect threat as well. Research has shown that one additional congressional hearing raises the probability of a Federal Trade Commission merger challenge, for instance, by approximately 4.2 percentage points. What's more, the political influence tends to happen at the higher levels of the agency. It turns out that Washington bureaucrats are political creatures after all.

All this should give Google's employees, who have opened their wallets to fund Barack Obama's presidential campaign (making them the sixth-largest donor, behind Harvard University), something to think about.

When Obama showed up for a campaign stop at Google, he promised more aggressive antitrust enforcement. His technology campaign platform pledges to "reinvigorate antitrust enforcement" and "step up review of merger activity." He complained to the American Antitrust Institute that "the current administration has what may be the weakest record of antitrust enforcement of any administration in the last half century."

If the Bush administration's current antitrust probe of Google, coupled with this week's apparent threat of a federal lawsuit, amounts to a "weak" record, imagine what antitrust true believers in an Obama administration might do. (A three-way split of Google into search, applications, and display ads, anyone?)

That threat may be enough to convince the legions of vaguely progressive computer geeks who inhabit the recycling-focused, solar-powered Googleplex to rethink their enthusiasm for Obama. After Microsoft was targeted on antitrust grounds, employees there halved the percentage of contributions flowing to Democrats. It may even -- who knows? -- be enough to prompt Eric Schmidt, a longtime Democratic donor, to vote Libertarian.

Disclaimer: Declan McCullagh is married to a Google employee

The U.S. Department of Justice has reportedly hired a well-known antitrust litigator for a possible court challenge to a planned advertising deal between Google and Yahoo.

Former Walt Disney Co. Vice Chairman Sandy Litvack has been hired to head any legal challenge to the ad deal, according to an article published Monday by Dow Jones News Service.

It was not clear, the article said, whether any eventual lawsuit would target only the Google-Yahoo deal--or represent a broader assault on the Mountain View, Calif.-based company's business practices. Lawyers have been reportedly deposing witnesses and subpoenaing documents to support a courtroom challenge, which probably would be filed in Washington, D.C.

Litvack was an assistant attorney general for antitrust in the Carter administration; until recently he was a partner at the law firm of Hogan & Hartson. As of Monday, his name no longer appeared on the firm's list of attorneys.

His now-deleted Hogan & Hartson bio said: "Sandy has successfully defended a number of shareholder derivative suits, as well as a variety of antitrust cases. His work has entailed representing both plaintiffs and defendants in both jury and non-jury cases."

Also this week, the Association of National Advertisers sent a letter to the Justice Department opposing the Yahoo-Google search advertising deal.

The U.S. Department of Justice began gathering information from third parties in a probe of the advertising deal between Google and Yahoo.

Yahoo announced the nonexclusive partnership in June under which rival Google would supply it with some search ads, a move that could increase Yahoo search revenue but that also gives Google even more power in the market. Yahoo expects the 10-year deal to raise revenue by $800 million in its first year and to provide an extra $250 million to $450 million in incremental operating cash flow.

The partnership idea came to light during Microsoft's attempt to acquire Yahoo, which put more pressure on the Internet company to improve its financial results.

Faced with that financial challenge and a desire to push the Google ad deal through, Yahoo proposed to regulators that it subject the search advertising deal to a review process similar to one used for major mergers under the Hart-Scott-Rodino Act, said a source familiar with Yahoo.

Under the proposal, which was made to regulators when Microsoft still had a buyout offer on the table for Yahoo, the Internet search pioneer said it would give the Justice Department three and half months to review the deal before it implements the search advertising partnership.

Google's share of the U.S. search market reached 70.77 percent in July, according to Hitwise's most recent numbers. Yahoo's share of the market declined to 18.55 percent at the same time.

American peer-to-peer users worried about being sued into oblivion by the recording industry may soon have a much bigger concern: facing off against the U.S. Department of Justice.

Two senators, a Democrat and a Republican, introduced a bill on Wednesday that would unleash the world's largest law firm on Internet pirates. It would authorize the Justice Department to file civil lawsuits against people engaged in peer-to-peer copyright infringement--with the proceeds going to the company or person who owns the copyright.

"This legislation is a simple bill that would give the Department of Justice the authority to prosecute copyright violations as civil wrongs," Sen. Patrick Leahy, the Democratic chairman of the Senate Judiciary Committee, said during a hearing on Wednesday. Sen. John Cornyn, a Republican, is a co-sponsor.

This is not the first time this bill, called the Pirate Act, has surfaced in Washington. Despite criticisms from civil liberties groups and complaints from peer-to-peer companies that it amounted to corporate welfare for copyright holders, the Pirate Act has cleared the Senate three times. (Here's our coverage after the June 2004 vote.)

The Pirate Act enjoys strong support from large copyright holders. The Recording Industry Association of America said on Wednesday: "We commend Senators Leahy and Cornyn for their commitment and leadership to ensuring improved enforcement of IP protection."

And Dan Glickman, chairman of the Motion Picture Association of America, said the Pirate Act will "strengthen the government's law enforcement resources to crack down on intellectual property theft."

Oddly, though, the Justice Department has been less than enthusiastic about the measure in the past. One top department official said a few years ago that the idea is "something that people should take with a grain of salt"--and while "the Justice Department is there to enforce the law, there's something to be said for those who help themselves."

The Pirate Act's portion devoted to civil copyright enforcement is identical to the 2004 version. It says that "the attorney general may commence a civil action in the appropriate United States district court against any person who engages in conduct constituting (a copyright) offense." Anyone who reproduces or distributes copyrighted works that total $1,000 is liable for punishing statutory damages.

In addition, a federal judge "shall" award "restitution to the copyright owner aggrieved by the conduct."

Criminal charges? Nah.

Under a 1997 law called the No Electronic Theft Act, federal prosecutors can file criminal charges against peer-to-peer users who make songs available for download. A July 2002 letter from prominent politicians to U.S. Attorney General John Ashcroft urged the prosecution of Americans who "allow mass copying from their computer over peer-to-peer networks."

But the Justice Department has been less than eager to file criminal charges against people like Jammie Thomas, who recently was found liable for $222,000 in damages in a lawsuit brought by the RIAA. Federal prosecutors have indicated that they're hesitant to target peer-to-peer pirates with criminal charges for two reasons: Imprisoning file-swapping teens on felony charges isn't the department's top priority, and it's difficult to make criminal charges stick.

The relative ease of winning civil cases compared to criminal prosecutions is one big reason why the RIAA and MPAA adore the Pirate Act, called the Intellectual Property Enforcement Act in its latest incarnation. The burden of proof is lower, and a civil defendant has far fewer rights under the law.

There are two other benefits for copyright holders. It's cheaper for copyright holders because they don't have to take the the risk of hiring expensive lawyers to sue a defendant who's judgment-proof (and can't cough up a check if found liable). And judges and juries may be more likely to side with Justice Department prosecutors, who claim they're looking out for the public interest, than law firms employed by the for-profit companies comprising the RIAA.

The new version of the Pirate Act, in addition to civil enforcement, also:

* Creates an "operational unit" of at least 10 FBI agents to investigate intellectual property offenses. It requires the Justice Department to assign a federal prosecutor to Hong Kong and Budapest, Hungary, "to assist in the coordination of the enforcement of intellectual property laws" and allocates $12 million per year.

* Awards $20 million per year in additional funding to the FBI and the Justice Department's criminal division to investigate computer crimes.

* Amends existing law dealing with criminal forfeiture. Says that "any property used, or intended to be used, in any manner or part to commit or facilitate the commission" of certain intellectual property offenses is subject to forfeiture. Civil forfeiture is also included. This expands on a recent counterfeit goods-related law.

News.com's Anne Broache contributed to this report.