The U.S. Department of Justice said yesterday that it has proposed a settlement in the case of Google's (Nasdaq: GOOG) $700 million bid to acquire ITA Software, a Cambridge, Mass.-based airfare pricing and shopping software company. Essentially, the deal can go through provided that Google plays fair with travel competitors -- with some stipulations about how the Mountain View, Calif.-based search giant is to use, develop, and license ITA's technology.

Under the terms of the proposal, which would stand for five years, Google will be required to continue licensing ITA's QPX software, which organizes airfares and itineraries, to other airfare search websites on "commercially reasonable terms," according to the DOJ release. Google must keep developing and investing in ITA products (such as InstaSearch, an airfare search system) and offering them to other travel websites.

Interestingly, the DOJ is also requiring Google to implement firewalls to "prevent unauthorized use of competitively sensitive information and data gathered from ITA's customers." There are a few more stipulations, but the main point is that federal regulators will be watching Google's behavior in online travel closely, to try to ensure fair competition.

The Google-ITA deal was formally opposed last fall by a coalition of travel companies including Expedia (Nasdaq: EXPE), Kayak, Hotwire, and Sabre Holdings (Microsoft's Bing Travel also joined). The DOJ agreed with some of their complaints, saying today that "the acquisition, as originally proposed, would have substantially lessened competition among providers of comparative flight search websites in the United States, resulting in reduced choice and less innovation for consumers."

The coalition against the Google-ITA deal, called FairSearch, said the DOJ decision to challenge Google is "a clear win for consumers" and called it "an important victory." In a statement, FairSearch added: "By putting in place strong, ongoing oversight and enforcement tools, the Department has ensured that consumers will continue to benefit from vibrant competition and innovation in travel search."

In a Google blog post, Senior Vice President Jeff Huber wrote that Google is "moving to close this acquisition as soon as possible, and then we'll start the important work of bringing our teams and products together." He hinted that the Google-ITA combination will enable people to type into Google things like "flights to somewhere sunny for under $500 in May" and get back flight times, fares, and a link to where they can buy tickets.

We'll be watching for more fallout from this deal in terms of the competitive landscape in online travel -- as well as Google-ITA hiring and growth trends in the Boston area and beyond.

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