Opening salvo fired on social media battlefield as Yahoo sues Facebook

Reuters, SAN FRANCISCO

Wed, Mar 14, 2012 - Page 10

Yahoo Inc sued Facebook Inc over 10 patents that include methods and systems for advertising on the Web, opening the first major legal battle among big technology companies in social media.

The lawsuit, filed in a San Jose, California, US federal court on Monday, marks a major escalation of patent litigation that has already swept up the smartphone and tablet sectors and high-tech stalwarts such as Apple Inc, Microsoft Corp and Motorola Mobility Holdings Inc.

Yahoo’s patent lawsuit follows Facebook’s announcement of plans for an initial public offering that could value the company at about US$100 billion.

Facebook spokesperson Jonathan Thaw said Facebook learned of the lawsuit through the media.

“We’re disappointed that Yahoo, a longtime business partner of Facebook and a company that has substantially benefited from its association with Facebook, has decided to resort to litigation,” he said.

In an e-mailed statement, Yahoo said it was confident it would prevail.

“Unfortunately, the matter with Facebook remains unresolved and we are compelled to seek redress in federal court,” the company said in a statement.

Only two of the 10 patents at issue are directly related to social networking technology. Most focus on online advertising, including methods for preventing “click fraud,” as well as privacy and technology for customizing the information users see on a Web page.

Yahoo, one of the Web’s pioneering companies, has seen its revenues decline in recent years at a time when rivals, such as Facebook and Google, have thrived. In January, Yahoo appointed former PayPal president Scott Thompson as its new chief executive, replacing Carol Bartz, who was fired in September last year.

Yahoo said late last month it was seeking licensing fees from Facebook over its patents and that other companies have already agreed to such licensing deals.

Colleen Chien, a professor at Santa Clara Law in Silicon Valley, said companies are usually more vulnerable to patent suits when they are in the IPO process.

“As a general proposition, when a company is about to go public, the last thing it needs is to get involved in a knock-down, drag-out litigation fight,” Chien said. “So that might make Facebook more willing to resolve its differences with Yahoo.”

Yahoo has used similar timing to its advantage in the past. Google agreed to issue shares to Yahoo nine days before Google went public in 2004 in exchange for a license to Yahoo’s patents. Google later took a US$201 million non-cash charge related to the transaction.

Yahoo has not said whether it would bring patent claims against other social networking companies and a Google spokesperson declined to comment on the Quinn Emanuel litigation firm’s involvement. Zynga also declined to comment.