Google backed out of the deal this week, blaming continued concerns from US regulators and internet advertisers, although it did not say directly that the DoJ was planning to block the deal. The deal would have lead to a "lengthy legal battle", Google said.
The deal, first announced in June, would have allowed Yahoo to run Google advertising on its search pages, and it was projected to add $800m to Yahoo's annual revenue. However a number of advertisers had expressed concerns that the deal would lead to fewer options for internet advertising and higher advertising rates, although Google denied those charges.
In response Google and Yahoo voluntarily submitted the deal to the DoJ, but the agency had yet to approve the proposal. Google rival Microsoft also lobbied hard against the deal.
Yahoo said it was disappointed that Google backed out of the deal. "Yahoo continues to believe in the benefits of the agreement and is disappointed that Google has elected to withdraw from the agreement rather than defend it in court," the company said.
"Google notified Yahoo of its refusal to move forward with implementation of the agreement following indication from the Department of Justice that it would seek to block it, despite Yahoo's proposed revisions to address the DoJ's concerns."
The controversy over the proposed ad deal with Yahoo had become a distraction, Google said.
"After four months of review, including discussions of various possible changes to the agreement, it's clear that government regulators and some advertisers continue to have concerns about the agreement," David Drummond, Google's senior vice president and chief legal officer, wrote on the Google public policy blog.
"Pressing ahead risked not only a protracted legal battle but also damage to relationships with valued partners. That wouldn't have been in the long term interests of Google or our users, so we have decided to end the agreement."
NEXT PAGE: The DoJ's response
Yahoo Claims the US Department of Justice (DoJ) was planning to block its advertising deal with Google.
The DoJ said the decision to call off the deal will preserve competition in search advertising. "The companies' decision to abandon their agreement eliminates the competitive concerns identified during our investigation and eliminates the need to file an enforcement action," Thomas Barnett, assistant attorney general in charge of the DoJ's Antitrust Division, said.
"The arrangement likely would have denied consumers the benefits of competition--lower prices, better service and greater innovation."
Yahoo will now move forward with its business plans, the company said.
"This deal was incremental to Yahoo's product roadmap and does not change Yahoo's commitment to innovation and growth in search," the company said.
"The fundamental building blocks of a stronger Yahoo in both sponsored and algorithmic search were put in place independent of the agreement."