Privacy groups vow to fight Microsoft-Yahoo deal

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The Microsoft-Yahoo deal, if consummated, would "create a powerful interactive internet duopoly in online media," says privacy group director

By Grant Gross | Washington | Monday, 4 February, 2008

Privacy groups are promising a fight before US regulatory agencies if Microsoft's offer to buy Yahoo for US$44.6 billion is accepted, and the deal could face significant hurdles in Europe as well.

Microsoft announced that it sent an offer to Yahoo's board of directors on Thursday, going public with the news on Friday morning. Immediately, the executive directors of the Centre for Digital Democracy (CDD) and the Electronic Privacy Information Centre (EPIC) said the acquisition would raise serious privacy concerns.

CDD will press the US Department of Justice, the Federal Trade Commission and Congress to "scrutinise this deal and impose the needed safeguards for it - and the industry," said Jeffrey Chester, CDD's executive director. CDD and EPIC tried to stop Google's proposed acquisition of online ad service DoubleClick on privacy grounds before the FTC last year, but the FTC approved the deal in December.

The Microsoft-Yahoo deal, if consummated, would "create a powerful interactive internet duopoly in online media," Chester said. "Google and Microsoft will have inordinate power to shape the online communications marketplace, including journalism, entertainment and advertising. There are consequences to democratic societies everywhere, as two digital gatekeepers are likely to control how the internet and other interactive media evolve."

The proposed deal also underscores a need for new laws or regulations that protect consumer data, Chester added. "In an era when individuals are increasingly conducting their personal, social and political lives online, the corporations that control the digital experience will have a far-reaching influence over every aspect of society," he said. "Consumers will be more vulnerable to having their personal information become the property of the GoogleClick's and Microhoo's."

But the DOJ and FTC may have little grounds to oppose a Microsoft/Yahoo merger, said Professor Keith Hylton, who specialises in antitrust issues at the Boston University law school. While Microsoft and Yahoo compete in some areas, Microsoft could argue this a "vertical" merger that largely expands its online services, but largely doesn't eliminate competition, he said.

"I think Microsoft is trying to ramp up in the online services/online ad revenue business," Hylton said. "Microsoft is a small player in that area, and Google is a big player. This is a merger of two firms trying to compete against a big monster out there - Google."

But the deal could face more hurdles in Europe. If the deal allows Microsoft to take components of Windows online, and "in the process increases Microsoft's dominance of the market for PC operating systems," then the European Commission would have to prohibit the deal, said an antitrust lawyer in Europe who asked not to be identified.

European Union merger rules prohibit dominant companies from increasing their dominance, the lawyer said.

The combined company would likely have to sell off an instant-messaging service, added a European Commission official familiar with the competition department. "I can't see how Microsoft/Yahoo would be allowed to keep both instant-messaging services," said the official, who also asked not to be identified.

Microsoft campaigned for federal regulators to block the Google-DoubleClick deal, partly on antitrust grounds. But Google argued the acquisition would join two companies operating in different online markets.

Last week, Judge Colleen Kollar-Kotelly of the US District Court for the District of Columbia extended antitrust scrutiny of Microsoft for two years. But the US government's antitrust case against Microsoft was based on its desktop and server operating systems, not online services. If anything, the old antitrust case could help Microsoft make the case for approval of its acquisition of Yahoo, Hylton said.

"I assume Microsoft people can say, 'Look, we're already under a microscope, doesn't this suggest we're less likely to do anticompetitive things?'" Hylton said.

But a consolidating online market means users will have their data held by a small number of companies, said Professor Joseph Turow, at University of Pennsylvania school of communication.

"Microsoft's decision to buy Yahoo is a direct result of the decision by the FTC to allow Google to purchase DoubleClick," he said. "It is further evidence that despite the appearance of unlimited choice in the new media environment, people's activities will be tracked and shaped by a very small number of companies who care far more about surveillance and targeted advertising than the public interest."

The public needs to demand privacy scrutiny in the proposed deal, he said. "The federal government, which should have been the guardian of the public interest, has dropped the ball."

Additional reporting by Paul Meller in Brussels.