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Yahoo Launches Surprise Patent-Attack Against Facebook

February 28, 2012

Jedidiah Becker For RedOrbit

The once cordial relationship between web giants Yahoo and Facebook may be quickly souring as Yahoo is now launching a legal offensive against the social network, demanding hefty licensing fees for some 10 to 20 of its patents.

Yahoo claims that it holds patent rights on a number of digital tools critical to Facebook´s ads, messaging, privacy controls and news feed.

Representatives from both companies met together Monday to begin talks on the issue, though neither side has yet disclosed the dollar amount that Yahoo is trolling for.

In an email statement to the New York Times, a Yahoo spokesman stated that: “Yahoo has a responsibility to its shareholders, employees and other stakeholders to protect its intellectual property.”

“We must insist that Facebook either enter into a licensing agreement or we will be compelled to move forward unilaterally to protect our rights,” the email read, hinting that Yahoo is ready to take its case to court should the two companies fail to reach a private agreement.

Meanwhile, Facebook appears to have been blindsided by Yahoo´s threat to take legal action. According to an official statement issued by spokesman for Facebook: “Yahoo contacted us at the same time they called the New York Times and so we haven´t had the opportunity to fully evaluate their claims.”

Yahoo´s action is likely to upset the harmonious albeit unofficial symbiosis that has existed between the two companies for years. For instance, Yahoo has profitably utilized Facebook´s network in conjunction with its own email service Flickr. And less than two weeks ago, Yahoo´s news reader app hit the 25 million-user benchmark with the help of the social network´s Open Graph protocol. In a blog post Facebook even congratulated Yahoo on the achievement.

Until now, the world of social media has for the most part managed to remain unsullied amidst the escalating, multi-billion-dollar patent warfare that has embroiled much of the tech industry in recent years. If Yahoo ends up taking legal action to enforce its patents, it will be the first significant courtroom brawl between large social media companies.

Yet, while Yahoo´s strategic patent attack is almost certain to get it a bit of quick cash to stuff in its coffers, a number of industry whizzes view the action as a desperate attempt by a moribund and increasingly unprofitable company to get its shareholders dollars wherever it can find them.

In a scathing editorial, TechCrunch´s Josh Costine had the following to say about Yahoo´s patent ploy: “After relentlessly stagnating as Facebook innovated, to now try to extort Zuckerberg´s company just as it enters the spotlight reeks of desperation.”

Pointing out that Yahoo is likely feeling intimidated in light of its own foundering ad business, Costine believes Yahoo´s shareholders shouldn´t get too excited over the company´s exploitation of Facebook´s minor strategic blunder.

“Yahoo´s shareholders should be worried. Your business model shouldn´t depend on the remarkable shortsightedness of a patent officer who thought it was ok to let someone own the concept of connections between personal profiles online.”

And that´s a view that a number of academics are increasingly adopting as well.

In their 2008 paradigm-rattling book “Against Intellectual Monopoly,” economists Michele Boldrin and David K. Levine make the case that Internet, entertainment and tech companies are increasingly using patents and copyrights as an aggressive tool to attack potential competitors rather than as a means of protecting and fostering innovation.

And they too note that those companies that most aggressively use their intellectual property in court also tend to be the same companies who are themselves failing to innovate.

Yahoo´s patent attack comes as Facebook prepares for its landmark initial public offering, which is predicted to value the company at up to $100 billion.

While Facebook has adopted a generally liberal strategy in its use and acquisition of intellectual property, it has seen an increasing number of minor patent claims brought against it as it prepares for the IPO.

Yahoo, however, represents the first large patent-wielding tech company to go after Facebook dollars in this manner.

In 2004, Yahoo used similar tactics to extract some 2.4 million shares from Google before beloved web colossus went public.

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Source: Jedidiah Becker For RedOrbit



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