Google Withdraws from Search Ad Deal with Yahoo

WASHINGTON (Reuters) - Google Inc. canceled plans for a search advertising partnership with Yahoo Inc amid opposition from antitrust regulators and advertisers, Google's chief legal officer said in a blog posting on Wednesday.

Yahoo expressed dismay at Google's decision, saying it was "disappointed that Google has elected to withdraw from the agreement rather than defend it in court."

The Justice Department, in a statement issued on Wednesday, said it had told Google that it planned to file a lawsuit to block the deal on antitrust grounds.

"Had the companies implemented their arrangement, Yahoo's competition likely would have been blunted immediately with respect to the search pages that Yahoo chose to fill with ads sold by Google rather than its own ads," the Justice Department said.

Google shares were down 1.32 percent in late-morning trade at $362.16, while Yahoo was up 5.32 percent at $14.01. Both are traded on the Nasdaq market.

Google and Yahoo, Nos. 1 and 2 in the Internet search market, announced the planned partnership in June but delayed implementation to allow the Justice Department to scrutinize it for antitrust issues.

Google said it pulled out of the deal rather than face a protracted legal fight.

"After four months of review, including discussions of various possible changes to the agreement, it's clear that government regulators and some advertisers continue to have concerns about the agreement," the Google legal officer, David Drummond, said in his Internet posting.

"We're of course disappointed that this deal won't be moving ahead," he said.

Between them, Google and Yahoo had more than 80 percent of the web search market in August, according to comScore Inc.

(Reporting by Diane Bartz; editing by John Wallace)

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