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If Microsoft wants Yahoo for $44.6 billion, the deal will have to pass the smell test at a Justice Department that is already intimately familiar with the software giant’s corporate practices. Officials in the Antitrust Division say they have not received any filings but are prepared to scrutinize the proposed merger. “As far as I know there’s not actually a deal yet,” says Thomas Barnett, who heads the 350-lawyer Antitrust Division. Once both parties have submitted their paperwork, the government has 30 days to approve a deal or move ahead with a second request for documents. That may turn a preliminary inquiry into a full-blown investigation that could last months or more. (A proposed XM-Sirius $13 billion satellite radio merger that was announced a year ago is still pending.) Google’s executives already have raised alarms about the proposed deal and say Microsoft could once again try to dominate the way it did in the 1990s, when it bundled its Web browser with its operating system, giving consumers little choice and leaving rivals screaming foul. Google also says a Microsoft-Yahoo alliance would marry the two largest e-mail providers and leave Microsoft in a position to bypass competitors and limit choice for Internet users. In return, Microsoft’s top lawyer Brad Smith said recently that the alliance with Yahoo would help break Google’s Web domination. For many ex-Justice Department officials, the specter of a potentially long, drawn-out review is imminent. “There’s no doubt that this transaction between Microsoft and Yahoo would lead to significant scrutiny both here and in Europe with regulators,” says Scott Hattaway, who joined Howrey as a partner last year after working as a trial attorney in the Antitrust Division since 2003. FAMILIAR TERRITORY The Justice Department and the Federal Trade Commission — the two federal agencies that share responsibility for reviewing mergers and other potentially anti-competitive behavior in the markets — last week decided that Justice would handle the potential Microsoft-Yahoo deal. Officials at both agencies would not discuss their deliberations of Microsoft’s unsolicited bid, but say they often consult one another on what agency will review a certain merger, and decisions are based on prior experience, the industry involved, and the availability of resources. For much of the past six years, a core group of attorneys in the Antitrust Division’s networks and technology enforcement section — in conjunction with lawyers from at least 18 states’ attorneys general offices — have monitored Microsoft as part of a court-approved settlement borne out of the landmark antitrust case filed in 1998 by the federal government and 20 states. Aided by economists, the lawyers have, among other things, kept tabs on whether Microsoft has allowed competing software to run seamlessly on its operating systems, has retaliated against third-party vendors who use alternative software, or has entered into exclusive distribution agreements. They also have submitted three to four annual reports after assessing Microsoft’s compliance reports and met often with Microsoft’s attorneys and executives. Judge Colleen Kollar-Kotelly of the U.S. District Court for the District of Columbia last month extended that decree to 2009 because of delays in Microsoft’s licensing program. The networks and technology section, with some two dozen lawyers and support staff, is headed by section chief James Tierney and assistant chief Scott Scheele. Both have extensive experience in merger litigation and reviews involving technology companies and financial markets. The section, a former Justice official says, has a “reputation for being one of the better sections, and they’ve a got a lot of people there who know these industries well.” Barnett says the group of in-house Microsoft experts at Justice has the credentials to review a potential Microsoft-Yahoo assignment in conjunction with other sections. “Certainly, the networks and technology enforcement section has great familiarity with Microsoft and many of the markets in which it operates,” he says. Lawyers there may be joined by counterparts in other sections with relevant experience in other fields, Barnett says. Ex-Justice officials say having Microsoft specialists inside the department may help speed up the review process, which in complex transactions can take six months or more. “You have a whole team at Justice who is all experienced with that,” says Makan Delrahim, who was a deputy assistant attorney general in the Antitrust Division from 2003 to 2005 and is now a partner at Brownstein Hyatt Farber Schreck. “There’s not a new learning curve.” COVINGTON CONNECTION It’s not just trial attorneys who know Microsoft well. The head of the Antitrust Division and two of his four deputy chiefs have had close relationships with Microsoft’s top antitrust lawyer, Charles “Rick” Rule of Cadwalader Wickersham & Taft. Prior to joining Justice in 2004, Barnett worked at Covington & Burling, which has represented Microsoft in antitrust issues and other matters. At Covington, Barnett worked with Rule, who chaired the antitrust practice until his departure in 2001. Barnett says he handled some matters for Microsoft while at the firm, but nothing that was related to the consent decree. Still, for his first year at Justice, Barnett was prevented from overseeing the Microsoft case. In recent years, he also has had to fend off criticism that his division has been lax when it comes to challenging corporate mergers. The division has also taken shots from consumer advocates for supporting an end to the 2002 Microsoft settlement and defending the company in Europe and elsewhere from increased scrutiny by regulators. “You got the department taking pro-defendant positions with great frequency … and their position up until now has been very favorable,” says Albert Foer, who heads the American Antitrust Institute in Washington, a nonprofit group that has challenged Justice’s and the FTC’s handling of mergers. “Microsoft is probably very glad to have the Justice Department take a look at this.” The division’s stance is not surprising to one former Justice attorney, who notes that fewer mergers are being challenged than in years past. (The number dropped to 12 in fiscal year 2007, compared to 48 in fiscal 2000.) “I think that it’s fair to say that this administration … because of their economic theory and philosophy is more reluctant to intervene with what they view as free-market forces,” says Joyce Bartoo, who joined Winston & Strawn last year after a 13-year stint as a trial attorney specializing in mergers and acquisitions in the Antitrust Division. Barnett and other Justice officials defend their record, saying they are applying the same rules adopted for merger reviews used by past administrations. “We believe that we’ve been consistently applying those same principles. They lead us to where to they lead us,” he says. “We review mergers and come to a solution as expeditiously and fairly as possible. We take whatever time is necessary so we can come to the right answers.”
Pedro Ruz Gutierrez can be contacted at [email protected].

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