Google vs Justice Department, Let the Battle Begin writes on why Google (Nasdaq: GOOG) dropped 5.5% today.

Google closed the regular trading session down 5.47 percent to $419.95 a share. Earlier in the day, the Internet giant's share price dipped as low as $417.55 per share, inching closer to its 52-week low of $412.11.

"I can't point to any one thing, but there are four things that you probably could say contributed to (today's) decline," said Jason Helfstein, a media and Internet analyst with Oppenheimer & Co.

Topping the list, Helfstein and several other analysts, pointed to an announcement over the weekend by the Association of National Advertisers, which called on the U.S. Department of Justice to block the controversial Google-Yahoo advertising search deal from going through.

"Google doesn't stand to make a lot of money from the (Yahoo) deal, but if it's rejected, Yahoo may have no choice but to sell to Microsoft and that wouldn't be good for Google," Helfstein noted.

This was too fuzzy of an explanation.

WSJ 7 hours later has the news.

Top Lawyer Is Selected
As U.S. Mulls Google Suit

September 9, 2008

Washington -- The Justice Department has quietly hired one of the nation's best-known litigators, former Walt Disney Co. vice chairman Sanford Litvack, for a possible antitrust challenge to Google Inc.'s growing power in advertising.

Mr. Litvack's hiring is the strongest signal yet that the U.S. is preparing to take court action against Google and its search-advertising deal with Yahoo Inc. The two companies combined would account for more than 80% of U.S. online-search ads.

Google shares tumbled 5.5%, or $24.30, to $419.95 in 4 p.m. trading on the Nasdaq Stock Market, while Yahoo shares were up 18 cents to $18.26.

For weeks, U.S. lawyers have been deposing witnesses and issuing subpoenas for documents to support a challenge to the deal, lawyers close to the review said. Such efforts don't always mean a case will be brought, however.

Mr. Litvack, who was the Justice Department antitrust chief under President Jimmy Carter, has been asked to examine the evidence gathered so far and to build a case if the decision is made to proceed, the lawyers close to the review said.

It isn't clear whether a U.S. challenge would target the Google-Yahoo deal alone or take on broader aspects of Google's conduct in the growing online-advertising business. The agreement with Yahoo, announced in June, gives Google, of Mountain View, Calif., the right to sell search and text ads on Yahoo sites, sharing revenue with Yahoo, which is based in Sunnyvale, Calif.

Display and search-based Web advertising, which are dominated by Google, have transformed the media industry. As a result, a federal antitrust case against Google could set new boundaries for Internet competition, much as the Justice Department suit against Microsoft Corp. a decade ago broke ground applying antitrust law to new technologies.

This will be interesting watching Google defend its case.

Google has said the Yahoo deal doesn't violate antitrust law. It has forcefully argued -- in public testimony before Congress and in private meetings with Justice Department lawyers -- that the deal is pro-competition. The companies say they voluntarily delayed closing the deal until early October, to allow the U.S. to complete its review.

"We voluntarily delayed implementation of this arrangement to give the Department of Justice time to understand it, and we continue to work cooperatively with them," Google said. "While there has been a lot of speculation about this agreement's potential impact on advertisers or ad prices, we think it would be premature for regulators to halt the agreement before we implement it and everyone can judge the actual impact."

Yahoo is there seeing the Google/Yahoo deal as essential for its survival.

In a statement late Monday, Yahoo said: "We have been informed that the Justice Department, as they sometimes do, is seeking advice from an outside consultant, but that we should read nothing into that fact. We remain confident that the deal is lawful."

Microsoft is taking pleasure having their turn filing a complaint.

Microsoft also has objected to the deal, saying it would unfairly foreclose competition on the Web. In Senate hearings in July, Microsoft's general counsel, Brad Smith, testified that "if search is the gateway to the Internet, and most people believe that it is, this deal will put Google in position to own that gateway and the information that flows through it."

I wonder how appealing the free food looks to Google new hires now that they have a potential lawsuit from the Justice department on the horizon.  Will the existing employees with options under water think of bailing?

And, for us data center focused people, do the state governments that gave Google data center construction tax breaks question their decisions?

This could be the big turning point for Google’s image.