Facebook, perhaps echoing the thoughts of users, pundits, and other observers of the surging social media space, said it was “puzzled” by Yahoo’s huge patent infringement lawsuit against the social networking giant.
The social media world is buzzing with news of Yahoo’s lawsuit, because Yahoo’s fortunes have been on the wane in recent years as it struggles to regain market share, while Facebook’s has been surging as it prepares to enter what it hoped to be a “quiet period” before staging its IPO this spring. Both Yahoo and Facebook are headquartered in the Silicon Valley.
Facebook said in a statement regarding Yahoo’s lawsuit: “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. Once again, we learned of Yahoo’s decision simultaneously with the media. We will defend ourselves against these puzzling actions.”
Yahoo’s lawsuit charges: “Facebook’s entire social network model, which allows users to create profiles for and connect with, among other things, persons and businesses, is based on Yahoo’s patented social networking technology.” Yahoo claims that Facebook has been “free riding” on its intellectual property and making royalty payments alone will not be enough to satisfy them. Yahoo said the social networking technology Facebook infringed upon includes the website’s privacy settings, News feed, and advertizing methods. Yahoo in its 19 page lawsuit regarding ten patents is demanding triple damages, and for Facebook to stop using the technologies.
Yahoo came under the leadership of a new CEO, Scott Thompson in January, after four months with an interim CEO following its dismissal of Carol Bartz in September. Many sources say that Thompson, who became president of eBay’s PayPal business in 2008, and was PayPal’s senior vice president and chief technology officer, is leading efforts to go after Facebook for patent infringement, and generally a more aggressive approach as Yahoo tries to stabilize.
Sources said Thompson and legal chief Michael Callahan are the only two people working on the project to sue Facebook, which has been a hotly debated, divisive issue in the company. Yahoo has traditionally had a policy of using patents for defense, not offense. Patents have been more common among tech companies as they compete for users and revenues in a rapidly changing space. Microsoft, Google, and Apple, for example, are all involved in legal actions generally related to mobile technology.
Yahoo, while it has generally been in favor of patents for defense not offense, had a similar legal battle with Google before it staged its IPO in 2004 regarding search patents for its Overture acquisition. Yahoo got several more million shares of that stock when the two companies settled just ten days before Google’s IPO.
The stakes in this legal battle are much higher. Should Yahoo enjoy success with its lawsuit, it could badly stall, hurt, or even postpone Facebook’s IPO. On the other hand, if Yahoo is not successful, as seems likely given observations by industry participants and observers, Yahoo will reinforce its image as a company floundering, unable to regain its footing, and whose value is not based on its current business but on non-operating assets. Yahoo explained in a statement that over the years it has invested a great amount of resources in developing technology that enables it to engage 700 million unique monthly users and:
“Unfortunately, the matter with Facebook remains unresolved and we are compelled to seek redress in Federal Court. We are confident we will prevail.”
Former Yahoo director Eric Hippeau does not agree: In a tweet today he expressed his opinion of Yahoo’s lawsuit with a link to a story about it: “Pathetic and heart breaking last stand for Yahoo. It’s all over. I loved you very much.”