Inside the Virtual Coliseum: Yahoo! v. Facebook


 While patent litigation between smartphone and other technology companies has been prevalent in recent years, patent litigation is relatively new among the social media and social networking champions such as YouTube, Twitter and Facebook. However, as Yahoo! adapts to compete with younger and more vibrant companies, the Internet giant has gone on the offensive to accelerate its program for growth. This tactic has led Yahoo! to use its very valuable portfolio of patents against major players in the advertising and social media markets, and most recently, against Facebook.

 In 2004 Yahoo acquired Overture Services Inc., a search-advertising company that had sued Google, Inc. for infringing Overture’s paid search advertising patent, the patent (U.S. Patent No. 6,269,361), employed in Google’s AdWords model. Yahoo continued the litigation, and ten days before the Google initial public offer (IPO), the two companies reached a settlement. In the settlement agreement, Yahoo gave Google a perpetual license to the patent and received preferred stock, which Yahoo sold immediately after the IPO for nearly $1.5 billion.

 Yahoo was strategic in their timing of the settlement in that it was right before Google’s IPO. In hindsight, however, Yahoo could have received much more. Today, the majority (95%) of Google’s $38 billion a year business stems from the AdWords model.

Fortunately for Yahoo, Facebook has given the Internet portal another bite at the apple, and in light of Yahoo’s “Google learning experience,” Yahoo may not settle so quickly this time. Yahoo seeks to enforce its patents against Facebook, possibly licensing ten (10) patents over a number of technologies. Yahoo not only has the patent for paid search advertising, but Yahoo also claims to have patents claiming such things as: placing target advertisements on users’ profile pages, “liking” posts, sending instant messages to other users’ inboxes, and previewing how a privacy setting will look to other users.

 The Yahoo patent portfolio and the patent are profitable assets to the company. Yahoo is capable and willing to enforce these patents against companies making money off of paid search or paid advertising on the Internet today.

What makes the situation more interesting is that Facebook is seeking to complete an IPO by Spring 2012, which is rumored to value the biggest social network of all time at around $100 billion. If Yahoo is again successful, Facebook may have to reach deep into its pockets for much more than the $1.5 billion Google paid in 2004 to settle the dispute with Yahoo. However, in an effort to bolster their patent portfolio, Facebook recently purchased 750 patents from the war chest of technology giant, I.B.M.

Moreover, on April 3, 2012, Facebook went on the offensive by accusing Yahoo of infringing ten (10) of Facebook’s patents, including the patent regarding their social news feed (U.S. Pat. No. 7,669,123). Facebook also publicly criticized Yahoo, stating: “Yahoo [has made a] short-sighted decision to attack one of its partners and prioritize litigation over innovation.”

 It appears that the congenial nature of Silicon Valley may be tested in the near future by Darwin’s theory of survival of the fittest. In light of the fact that many technology publications have rated the Yahoo patents as the most valuable among those for communication and Internet services, and the fact that Yahoo must compete with youthful, evolving competitors; the web portal company may have found its greatest asset, its patent portfolio.

By: Joseph J. Stafford

Intellectual Property Attorney

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