Privacy groups vow to fight Microsoft-Yahoo deal

Privacy groups are promising a fight before U.S. regulatory agencies if Microsoft's offer to buy Yahoo for $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 Friday morning. Immediately, the executive directors of the Center for Digital Democracy (CDD) and the Electronic Privacy Information Center (EPIC) said the acquisition would raise serious privacy concerns.

CDD will press the U.S. Department of Justice, the Federal Trade Commission and Congress to "scrutinize 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 specializes 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 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.

The IDG News Service is a Network World affiliate.