The US government in 2008 threatened to fine Yahoo Inc $250,000 a day if it failed to turn over customer data to intelligence agencies, unsealed documents reveal.
The documents shed new light on how the government dealt with US Internet companies that were reluctant to comply with orders from the secretive US Foreign Intelligence Surveillance Court, which rules on government requests to conduct surveillance for national security issues.
Yahoo said it regarded the government move as unconstitutional.
The outlines of Yahoo's secret and ultimately unsuccessful court fight against government surveillance emerged on Thursday when a federal judge ordered the unsealing of some material about Yahoo's court challenge.
In a statement, Yahoo said the government amended a law to demand user information from online services, prompting a challenge during the George W. Bush administration.
"Our challenge, and a later appeal in the case, did not succeed," Yahoo general counsel Ron Bell said in a statement on Thursday.
The new material about the case underscores "how we had to fight every step of the way to challenge the US government's surveillance efforts," Bell added.
"At one point, the US government threatened the imposition of $250,000 in fines per day if we refused to comply."
'Win for transparency'
Experts say Yahoo’s lost battle may have helped pave the way for the Prism surveillance programme, which gave the government access to online communications by users of Yahoo.
Former National Security Agency contractor Edward Snowden disclosed the programme last year.
Yahoo said it was committed to protecting users' data and that it will continue to contest requests and laws that it considers unlawful, unclear or overly broad.
"We consider this an important win for transparency, and hope that these records help promote informed discussion about the relationship between privacy, due process and intelligence gathering," said Bell.
The newly released documents show that the Bush administration was taking a hard line and was miffed that Yahoo had even been allowed to get into court with its complaint.
"It's always been a little bit behind the curtain as to what Internet companies do when they actually receive these requests. Now we have evidence that Yahoo did in fact fight this battle and look at considerable fines as a consequence of not disclosing the data," said Marc Rotenberg, executive director of the Electronic Privacy Information Center.
"It tells us how very serious the Bush administration was about trying to get the Internet firms to turn over this data. Until the disclosure, it was mostly hearsay that they were willing to impose these penalties," he was quoted by the Reuters news agency as saying
"That's heavy handed," he added, referring to the threat of fines.