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Yahoo! Inc. v. Microsoft Corp.

United States District Court, S.D. New York

October 21, 2013

YAHOO! INC., Petitioner and Cross-Respondent,
v.
MICROSOFT CORPORATION, Respondent and Cross-Petitioner

Page 311

For Yahoo! Inc., Petitioner and Cross-Respondent: Alexander C Drylewski, Patrick George Rideout, Skadden, Arps, Slate, Meagher & Flom LLP (NYC), New York, NY; Robert Alexander Fumerton, Skadden, Arps, Slate, Meagher & Flom LLP(IIA), New York, NY.

For Microsoft Corp., Respondent and Cross-Petitioner: Richard Scott Goldstein, Orrick, Herrington & Sutcliffe LLP (NYC), New York, NY.

OPINION

Page 312

OPINION & ORDER

Robert P. Patterson, Jr., United States District Judge, Part I.

On October 15, 2013, Petitioner Yahoo! Inc. (" Petitioner" or " Yahoo" ) moved this Court, sitting in Part One, to vacate an arbitration award of equitable relief. (See Pet'r's Mem. of Law in Supp. of Pet. to Vacate Arbitration Award (" Pet'r's Mem.).) On October 16, 2013, Respondent Microsoft Corporation (" Respondent" or " Microsoft" ) opposed the motion to vacate and cross-petitioned for a confirmation of the arbitration award. (See Mem. in Opp'n to Yahoo's Pet. to Vacate & in Supp. of Microsoft's Cross-Pet. to Confirm (" Opp'n Mem." ).) Yahoo filed a reply on October 17, 2013 in further support of its motion to vacate and objecting to Microsoft's cross-petition, (see Reply Mem. in Further Supp. of Yahoo's Pet. to Vacate & Opp'n to Microsoft's Pet. to Confirm (" Pet'r's Reply" )), to which Microsoft replied solely on the issue of the cross-petition to confirm the arbitration award. (See Reply Mem. in Further Supp. of Microsoft's Cross-Pet. (" Resp't's Reply" ).) On October 18, 2013, Yahoo filed a sur-reply in response to the legal authority cited by Microsoft in its reply. (See Pet'r's Letter re Yahoo Inc. v. Microsoft Corporation, 13 CIV 7237 (" Pet'r's Letter" ).)

The arbitration award (the " Award" ) that is the subject of the instant dispute was issued on October 14, 2013 by an Emergency Arbitrator appointed by the American Arbitration Association (" AAA" ). (See Decl. of Robert A. Fumerton in Supp. of Yahoo! Inc.'s Pet. to Vacate Arbitration Award (" Fumerton Decl." ), Ex. A (" Arbitrator's Award" ).) The Emergency Arbitrator issued the Award under the legal authority granted to him by the arbitration provision of an agreement between Microsoft and Yahoo in 2009, the 2009 Search and Advertising Services and Sales Agreement (the " Agreement" ). (See Fumerton Decl., Ex. B § 17.5.) In that Award, the Arbitrator denied Microsoft's request for specific performance, but granted its request for injunctive relief. (See Arbitrator's Award at 8.)

For the reasons discussed below, Yahoo's motion to vacate the arbitration award is DENIED. Further, given the interest in enforcement of the equitable award made by the Arbitrator, and for the additional reasons discussed below, Microsoft's cross-petition to confirm the arbitration award is GRANTED.

I. BACKGROUND

A. The Search Alliance and the Agreement to Transition

Microsoft runs the internet search engine Bing, where search ads are provided by Microsoft's Bing Ads system.[1] (See Opp'n Mem. at 2.) Yahoo runs its own search engine and system for providing search ads, called Panama. (See id.) In the 2009 Agreement, Microsoft and Yahoo

Page 313

agreed to merge their search capabilities internationally to better compete with their main market competitor, Google. (See Fumerton Decl., Ex. B.) The Agreement provides that Yahoo would migrate its search and search ad services from Panama to Bing Ads. (See Pet'r Mem. at 4.) To begin this transition, the global market was divided into sixteen individual geographic markets.

The process of transitioning from Panama to Bing Ads in a given geographic market is broken down into phases, the most important of which are the " Demand" phase and the " Ramp" phase. During the first phase of transition, the Demand phase, the orders of all current Yahoo advertisers are set up in the Bing Ads system, by copying information from Yahoo's Panama system. During this phase, advertisers' orders are generally duplicated and present in both systems. (See Opp'n Mem. at 4.) The Ramp phase follows the Demand phase. During the Ramp phase, search traffic is shifted from Yahoo's system to the Bing Ads system. The shift of search traffic to Bing Ads " ramps up" over time. Thus, at " 10% Ramp," 10% of users' searches are answered by the Bing Ads system; at " 100% Ramp," the search traffic has been entirely moved over to Bing Ads. (See Frantz Decl., Ex. 3 ¶ 19 (Aff. of Robert Wyler).) In fourteen out of the sixteen of its geographic markets, Yahoo has completed the transition of its advertising business to Bing Ads. (See Arbitrator's Award at 3.) The remaining two markets, Taiwan and Hong Kong, are the subject of the instant dispute.

B. Transitioning the Taiwan and Hong Kong Markets

Microsoft and Yahoo originally agreed for the migration of the Taiwan and Hong Kong markets to be completed by 2011. (See Fumerton Decl., Ex. B ยง 8.1; Frantz Decl., Ex. 2 at 153:9-22 (Test. of Yahoo Senior Director for Search Alliance Ramesh Ramalingam).) However, technical problems leading up to the transition led to several delays by mutual agreement. (See Frantz Decl., Ex. 1 at 40:20-41:10 (Test. of Robert Wyler).) In February 2013, Microsoft and Yahoo ...


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