Regulator Defends Yahoo Japan Deal

TOKYO—Japan's antitrust regulator on Wednesday defended its decision to allow a new Internet search agreement between Google Inc. and Yahoo Japan Corp., a move that drew criticism from Microsoft Corp. and surprised antitrust experts.
The company explained that Google and Yahoo Japan would run their businesses separately despite sharing a common search engine and advertising platform, he said.
"Based on those conditions, the partnership wouldn't immediately cause any problems related to antitrust regulations," said Mr. Matsuyama, who added that the FTC will "continue to monitor" how the actual partnership develops to ensure that Yahoo Japan and Google stick to the original conditions.
Once completed, the partnership between Yahoo Japan and Google would lead to more than 90% of all Web queries in Japan being run through the U.S. Web giant's data centers.
The move marked a significant blow to Microsoft's renewed efforts to challenge Google in the Internet search arena. Microsoft said the tie-up will "eliminate search competition in Japan."
The Japanese regulator's decision differs from the approach taken by antitrust regulators in the U.S.
Google and Yahoo Inc. of the U.S.—which holds a 34% stake in Yahoo Japan but doesn't control its Japanese sibling—agreed to a search advertising deal in 2008 after fending off an unsolicited takeover bid by Microsoft. Several months later, Google pulled out of the agreement after U.S. regulators threatened to launch an antitrust lawsuit to block the deal, which it deemed likely to "harm competition."
Yahoo Japan spokesman Toru Nagano said one difference between the U.S. case and his company's agreement with Google in Japan is that, unlike its U.S. cousin, Yahoo Japan has never developed its own search engine or advertising system technology. It is currently using technology developed by Yahoo Inc. to run its search engine and search advertisements. Before that, for three years until May 2004, it used Google's systems.
When Yahoo last year said it would use Microsoft technology to power its search business, Yahoo Japan was left to choose between Google and Microsoft.
Yahoo Japan Chief Executive Masahiro Inoue Tuesday said one factor was that Microsoft had been slow to localize its Bing search service in Japan. Microsoft removed Bing's "beta" label in Japan on July 12, meaning the system has left the testing phase; its search engine's market share in Japan is about 3%.
Yahoo Japan said it will continue to innovate on top of Google's technology and compete with Google for advertising and users. Mr. Nagano, of Yahoo Japan, compared it to two chefs creating entirely different meals even though they buy the vegetables from the same farmer.
A Google official didn't immediately respond to a request for comment.

In Europe, Google is already facing antitrust scrutiny. In April, Google said European antitrust authorities have opened a preliminary inquiry into complaints about the Internet group's tactics from three European Web companies. Google has denied violating European law or taking any action to stifle competition.
Jiro Tamura, a law professor at Keio University, said Japan's FTC may not fully grasp the new characteristics of the search business, whereby search engines improve as they process more queries. By controlling over 90% of the search queries in Japan, Mr. Tamura argues, Google's search engine will become increasingly better than rival services over time.
"I don't know if the FTC has correctly understood what lies ahead with this collaboration," said Mr. Tamura, an expert on Japanese antimonopoly law.
He said Japanese antitrust regulators are very cautious compared to their more proactive European and U.S. counterparts and therefore they may be waiting to see how the partnership plays out before taking some action.
Ted Henneberry, a senior partner on antitrust and competition law at Orrick, Herrington & Sutcliffe, said he was "stunned" that Japanese regulators didn't take a longer look at the deal especially since the FTC has reputation for being extra cautious so as not to rushing into a decision.
"Given the extensive investigations in the United States and Europe into Google and the Google-Yahoo deal, it's difficult to comprehend," said Mr. Henneberry. "A situation where somebody is going to end up with 90% market share in Japan without a full investigation would be out of character for the FTC." At a Wednesday news conference, Takahide Matsuyama, secretary-general of Japan's Fair Trade Commission, said Yahoo Japan consulted with the regulatory body ahead of its Tuesday announcement disclosing the deal, under which Yahoo Japan will use Google's Internet search technology for its own searches.