Google said on Monday it had settled a long-running patent dispute with its archrival Yahoo, a move that reduces some of the uncertainty surrounding Google's business as it prepares for the public auction of its stock.
Google's initial public offering, once seen as a catalyst that could turn the slumping technology stock market around, has been delayed for about a week in the face of both technical snags and increasing investor skepticism. The unconventional auction could still proceed later this week or early next week.
The settlement resolves a lawsuit filed in 2002 by Overture Services, a company that pioneered the sale of advertising linked to Web search results and that Yahoo acquired in 2003. The suit claimed that Google's system for selling advertising displayed next to its Web searches violated a patent granted to Overture in 2001.
In settling the suit, Google agreed to give Yahoo 2.7 million shares, worth $291 million to $365 million if the shares sell within the range of $108 to $135 that Google has given for its initial offering price. According to Google's revised filing with the Securities and Exchange Commission on Monday, Yahoo will sell 1.1 million of those shares to the public in Google's auction. Before the settlement, Yahoo owned 5.5 million shares of Google and had planned to sell 550,000 in the auction.
By increasing the offering to 25 million shares from 24 million, Google may be adding to the supply of its stock even as demand for shares appears to be weakening. This might have the effect of depressing the final auction price. On the other hand, investors may see Monday's settlement as making Google more valuable, because it eliminates the prospect that Yahoo might win a much larger judgment.
The settlement also resolved a separate dispute between Yahoo and Google that dates back to 2000, when Yahoo invested $10 million in Google and agreed to use Google's technology for Internet searches on Yahoo. At that time, Google also gave Yahoo a warrant to purchase 3.7 million shares.
Representatives of both companies declined to discuss details of the long dispute, but said they were pleased with the settlement.
"It makes sense for Google to settle the thing because they are having enough trouble with their IPO right now," said Mitchell Rosenfeld, an attorney with the Capstone Law Group, in San Mateo, California.
Rosenfeld said that outcomes of patent cases, especially ones involving software, are notoriously unpredictable. Since the case involves the method Google uses to sell advertising, which represents 98 percent of its revenue, Rosenfeld said, the very worst outcome might potentially have threatened Google's core business.
"The odds for that death-star scenario are pretty small, but they are still significant enough to mean something in the eyes of investors," he said.
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