Yahoo's Patent Suit Against Facebook Crosses The Line

| About: Yahoo! Inc. (AABA)

By Ingrid Lunden


When Yahoo (YHOO) chief executive Scott Thompson got on his first investor conference call after taking over in January, he bragged to media and investors about the great wealth of talent and IP that existed at the struggling company. He said that it needed to “build great innovative products and put them inside customer experiences.” The news that it is suing Facebook (NASDAQ:FB) over alleged infringement of ten “method” patents by the social network, however, points to a different strategy to move ahead.

The action has ignited some strong opinions from the gallery: Fred Wilson at Union Square Ventures pulls no punches and calls the suit a “crock of shit” because it “crossed the unspoken line which is that web companies don’t sue each other over their bogus patent portfolios. I don’t think there’s a unique idea out there in the web space and hasn’t been for well over a decade.”

But this is not the first time that Yahoo has leaned on a big company with its patents just before the target has gone public — Facebook is planning an IPO that could value the company at $100 billion — nor is it the first time that Facebook has found itself in court.

Last year alone, the social network was involved in 22 separate patent suits, according to Reuters division Westlaw, double the number from 2010. These cover areas like message transmission to large numbers of users.

Up to now, Facebook, which has only 160 patents to its name (compared to Yahoo’s 3,300), has only been the plaintiff in one suit. That small number, and Yahoo’s large size, may mean a lot more cases like this one up ahead, making social media and web services the next terrain for patent litigators.

Facebook has been in courts over other issues as well, beyond patents. That’s the price of success these days.

Just last week, Facebook lost a ruling in Germany over how it handles user information and applies its “Friend Finder” feature: both were found to violate privacy laws. That case, brought by Germany’s Central Consumer Association, an umbrella group for consumer rights organizations, was originally filed in 2010. It will be finalized in the next week or two and then Facebook will have one month to modify its services to comply with the findings. In a separate case around privacy in Germany, Facebook is being sued by the Hamburg data protection authority over its facial recognition feature.

Germany was also the focus of a copy-cat case for Facebook: The German social network StudiVZ won a case lodged by Facebook over alleged IP theft and source code theft. That was back in 2009, and to be honest the sites have evolved away from each other quite a lot since then.

Further back than this, there are also the cases involving Paul Ceglia and the Winklevoss twins.

As for Yahoo, it is not known for bringing lots of cases against its competitors or for having to defend itself against other’s allegations, but it’s not exactly a stranger to enforcing its patent rights.

According to Reuters, in 2004, Yahoo took patent claims to Google before it went public, and in exchange got shares in Google (NASDAQ:GOOG) worth some $201 million at the time. It could be that this is what is behind Yahoo’s intention this time around, too.

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