WASHINGTON, DC — The U.S. Justice Department has opened a formal probe into the proposed deal that would allow Yahoo to run Google’s ads for a share of the revenue generated.According to sources familiar with the inquiry, investigators plan to review documents not only from Yahoo and Google, but also from large advertisers. The DOJ has issued “civil investigative demands,” anonymous sources told the Washington Post, adding that CIDs are not used in routine matters.

“They don’t [issue CIDs] without having identified significant issues,” M.J. Moltenbrey, a Freshfields Bruckhaus Deringer lawyer who previously served as director of civil non-merger enforcement in the Justice Department’s antitrust division, told the Post. “[CIDs involve] approval at higher levels within the antitrust division.”

Although the formal inquiry may indicate the DOJ has found something about which to be concerned, Yahoo remains upbeat about the process.

“There is nothing unexpected in the review of this arrangement as structured by the parties and Department of Justice officials,” the company said in a prepared statement.

Antitrust experts also said the DOJ’s maneuver may be nothing to cause concern.

“It doesn’t mean they have drawn any conclusions,” Peter Guryan, a partner with Fried Frank and formerly an antitrust lawyer in the Justice Department, told the Post. But “it is a significant step beyond a request for voluntary information. It demonstrates that the DOJ clearly has questions.”

When Google and Yahoo on June 12th announced their intent to partner on advertising, the companies agreed to delay implementation of the plan long enough for the DOJ to consider the ramifications of a virtual merger of the largest search engines on the Web. Google is far and away the dominant search engine, with Yahoo running a distant second and Microsoft’s MSN in third place. The Google-Yahoo deal followed closely on the heels of a hostile bid by Microsoft to acquire Yahoo.

An advertising deal between Google and Yahoo might pump up the latter’s sagging finances and make it less attractive as an acquisition target, but critics say allowing the proposal to become reality would create a virtual monopoly in the online advertising sector. That could be bad for everyone, they warn, because it could lead to price fixing and a decrease in competition in the marketplace.

Yahoo has estimated it could receive as much as $800 million annually from the arrangement.

Google has countered criticism by saying allowing its ads to run alongside Yahoo’s search results would provide consumers with more relevant advertising and advertisers with a better return on their investment.

In addition, Google Senior Vice President Omid Kordestani noted in a blog post, deals between the first- and second-ranked players in other markets hardly are rare.

“Toyota sells its hybrid technology to General Motors, even though they are the number one and number two car manufacturers globally,” Kordestani wrote. “Canon provides laser printer engines for HP, despite also competing in the broader laser printer market. Google and Yahoo will continue to be vigorous competitors, and that competition will help fuel innovation that is good for users.”