Google-DoubleClick: Tough sell in EU

news analysis Google's megamerger proposal with DoubleClick could face greater scrutiny in Europe than the United States if antitrust regulators decide the deal takes the companies into new markets.

The European Commission, which announced last week that it has pushed Google's merger proposal into its more rigorous "second phase" review, tends to follow two lines of investigation--current and future markets--when it looks at the antitrust implications of mergers. American trustbusters, on the other hand, take a narrower view.

For Google, that means its $3.1 billion planned merger is likely to pass antitrust muster in the United States, but faces a much tougher sell in Europe.

"Based on what I've read, this is not an acquisition that will be of great concern to U.S. authorities," said Beth Farmer, an antitrust professor at Pennsylvania State University's Dickinson School of Law. "In my opinion, I think the U.S. will allow it to go through since no one has characterized it as a horizontal merger."

But in Europe, merger proposals largely fall into one of two buckets. One is a non-horizontal merger, in which two companies in compatible but different lines of businesses are seeking to expand into new markets by merging, such as America Online's acquisition of Time Warner. The other type of merger is a horizontal merger, in which two companies in largely identical businesses are seeking to capture a larger bite of the market, as in the Oracle-PeopleSoft merger.

U.S. antitrust regulators have largely focused on challenging only horizontal mergers--to the point that U.S. courts have not ruled on a single non-horizontal merger in three decades. Not so, in Europe.

Both Google and DoubleClick have ad serving businesses: Google's AdSense serves ads to sites in its publisher network, and DoubleClick offers an ad serving and ad management product called Dart for publishers, advertisers, and enterprise customers. But Google's pay-per-click text ads are generated from keyword searches, or based on the context of a Web site, whereas DoubleClick places banner ads on sites.

"You have a competitor who is potentially locking up something valuable, and the concern is that the tool set won't be available to others."

--Dan Wall, antitrust attorney, Latham & Watkins

DoubleClick recently launched an advertising exchange, a marketplace that matches sellers of inventory, like Web site publishers, with buyers, such as advertisers or ad networks. And DoubleClick has a search engine marketing business called Performics.

As part of its second-phase investigation, the European Commission said it will look at the possibility that DoubleClick could have grown into an effective rival to Google in the online ad "intermediation" market. It said it will also investigate whether combining "the leading providers of respectively, on the one hand, online advertising space and intermediation services, and, on the other hand, ad serving technology, could lead to anticompetitive restrictions for competitors operating in these markets and thus harm consumers."

"It's about DoubleClick's toolset and how that plays into Google's business," said Dan Wall, an antitrust attorney for Latham & Watkins who represented Oracle in its successful bid to win court approval for the acquisition of PeopleSoft. "You have a competitor who is potentially locking up something valuable, and the concern is that the tool set won't be available to others."

If a substantial number of Google and DoubleClick customers say they are going to lose choice and be dependent on one main source, then that will cause the Commission to oppose the merger, said Ted Henneberry, a lawyer in the antitrust practice at Heller Ehrman in London who until last year was a member of the Irish Competition Authority.

"The key issue is going to be the extent to which the companies approach the same general market. The Commission will have to wrestle with the issue of are these, for the most part, complementary vehicles, or are they really competing vehicles? Are they really alternatives for advertisers and Web sites?" Henneberry said. However, he noted, if customers say the combination provides one-stop shopping, then that will be in Google's favor.

Although the Commission has rarely blocked a merger outright over the past decade, Google faces challenges, antitrust attorneys say.

"This deal raises very serious concerns. I would not assume it will be permitted," said Thomas Vinje, an antitrust attorney with Clifford Chance in Europe.

European antitrust regulators will issue a decision by April 2 on whether to block or allow the deal to go through. Meanwhile, Google still isn't off the hook in the United States. The Federal Trade Commission notified Google in May that it needed more information to evaluate the DoubleClick merger, as part of its "second request for information." The FTC will render a decision on whether to challenge the merger or allow it to proceed within 30 days after Google has certified it has complied with the FTC's second request. (Google complied with the request on November 14, a company spokesman said.)

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