Yahoo and Google retool advertising agreement

Bouncing the ball back to federal antitrust regulators, Yahoo and Google have reportedly revised their search advertising agreement with caps, according to a report in The Wall Street Journal.

According to the report, the companies sent a revised proposal to the Department of Justice over the weekend that calls for such significant changes as limiting the 10-year agreement to 2 years and, more importantly, placing a cap of 25 percent on the amount of revenue Yahoo can generate from Google under the deal.

The controversial search advertising deal calls for Yahoo to place Google's ads on its own relevant search pages. Under the initial deal, Yahoo had hoped to receive $800 million within the first year of the agreement.

But whether such a proposal would fly with Department of Justice officials has yet to be seen, given antitrust regulators have wanted a cap closer to the 20 percent range, one source familiar with the discussions told CNET News.

Regulators have been concerned that a Yahoo-Google agreement would lead to higher advertising prices and Yahoo exiting the search advertising business altogether if it found the Google deal lucrative enough.

Hence, regulators believed the cap on the percentage of Google ads that could appear on Yahoo search pages would serve as a means to keep the Internet search pioneer in the game.

The companies had been balking at such low caps, noting it would offer little economic benefit to their arrangement, sources familiar with the deal previously told CNET News.

It remains to be seen whether such a revised deal would go through and whether Yahoo's cut of the action would be reduced to $200 million, rather than $800 million.

Representatives for both companies declined to comment on their discussions with regulators, other than to note that the process is continuing.

"We are continuing to have cooperative discussions with the Department of Justice about this arrangement and agreed to a brief delay in implementing the agreement while those discussions continue. We are confident that the arrangement is beneficial to competition, but we are not going to discuss the details of the process," Adam Kovacevich, a Google spokesman, said in a statement.

Should an agreement be reached, the DOJ would likely file a consent decree with the courts, which would carry the same force as a court order. Typically, consent decrees last 10 years, or as little as 5 years, so a 2-year consent decree would be short, a source told CNET News.

And in these types of arrangements, the DOJ would likely insist a monitor would put in place to ensure the structure of the consent decree was upheld, with the monitor reporting to the DOJ but whose salary would be paid by the companies, the source added.