March 13, 2012

Facebook Sued By Yahoo For Patent Infringement

Struggling search engine Yahoo has filed an intellectual property lawsuit against social networking powerhouse Facebook in a San Jose, California federal court on Monday.

Yahoo claims Facebook has infringed on 10 of its patents including systems and methods for advertising online. Yahoo warned the social network last month that it would take action if it did not enter a licensing agreement for the disputed patents. The firm said that other companies had already licensed the patents in dispute.

The lawsuit marks the first major legal battle among tech heavyweights in social media.

Yahoo´s lawsuit follows Facebook´s announcement of plans for an initial public offering that could put a value on the world´s most popular hangout at close to $100 billion.

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

Facebook spokesman 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.

Yahoo, a once dotcom star that has struggled with the emergence of Google and Facebook, said it is confident it will prevail in the lawsuit.

“Yahoo´s patents relate to cutting edge innovations in online products, including in messaging, news feed generation, social commenting, advertising display, preventing click fraud and privacy controls,” said Yahoo. “Facebook´s entire social network model, which allows users to create profiles and connect with, among other things, persons and businesses, is based on Yahoo´s patented social networking technology.”

Mark Zuckerberg, Facebook´s founder and CEO, conceded that the design of the social network is not original and is based on the ideas of others, according to the lawsuit. However, Facebook signaled that it believed Yahoo had not tried hard enough to settle the matter out of court, and described the search engine´s action as “puzzling.”

This case echoes Yahoo´s decision to sue Google ahead of its IPO in 2004. That dispute was over patents that Yahoo had acquired as part of its takeover of pay-per-position specialist Overture.

Google settled that case by issuing 2.7 million shares to Yahoo just weeks before its flotation.

It makes sense that “Yahoo would want to try this tactic again as it worked in the past,” BGC Partner´s New York-based technology analyst Colin Gillis told the BBC. “But there´s an air of desperation about this - it´s unlikely that they will get easy money from Facebook. This isn´t going to derail the IPO.”

But 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 process of going public.

“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,” she told Reuters. “So that might make Facebook more willing to resolve its differences with Yahoo.”

Only two of the 10 patent infringements are directly related to social networking technology. The rest are tied in with online advertising, including methods to prevent “click fraud,” as well as privacy and technology for customizing the info users see on a web page.

“If what Yahoo is saying is literally true, then it seems like a lot of companies would be liable,” said Shubha Ghosh, a professor who specializes in intellectual property at The University of Wisconsin Law School. But he added, much would depend on whether a judge defines the patents broadly or narrowly.

A classic defense for companies targeted with patent claims is to threaten a countersuit using its on portfolio of patents. However, Yahoo has 20 times the patents Facebook holds (3,300 to 160, respectively), according to a government database.

The case in U.S. District Court, Northern District of California is Yahoo Inc. v. Facebook Inc., 12-cv-1212.


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