Google, Microsoft to spar over Yahoo ad deal

By Diane Bartz

WASHINGTON, July 14 (Reuters) - Google (GOOG.O: Quote, Profile, Research) and Microsoft (MSFT.O: Quote, Profile, Research) will spar on Tuesday at a congressional hearing called to examine whether Google's revenue-sharing deal with No. 2 search rival Yahoo (YHOO.O: Quote, Profile, Research) will harm competition.

Google, with more than 60 percent of the Web search market, and Yahoo, with 16.6 percent, announced a deal on June 12 that would allow Yahoo to place Google advertisements on its site and collect the revenue.

The deal, which the firms have said would garner Yahoo at least $250 million in the first year, was widely seen as an effort by Yahoo to fend off Microsoft's on-again, off-again efforts to buy all or part of Yahoo.

Microsoft's most recent offer to acquire Yahoo's search business was rejected Saturday evening by Yahoo.

Google chief legal officer David Drummond, defending his company's deal with Yahoo in written testimony for Tuesday's hearing, took a shot at Microsoft's 90 percent share of the personal computer operating system market.

"Dominance of the desktop can let one company favor its own products and services and obstruct the interoperability of competing products or services, overriding the desires of consumers," said Drummond in testimony prepared for the Senate Judiciary Committee's antitrust panel.

Microsoft General Counsel Brad Smith hit back, saying Google's deal would reduce Yahoo's incentive to compete against Google, would push Yahoo's search advertising platform into a downward spiral and establish an illegal price floor.

"When it comes to the issues before this subcommittee, Google should not be allowed to achieve an outcome through an agreement that it would not be permitted to achieve otherwise," said Smith in his written testimony.