Yahoo! Inc sued Facebook Inc over 10 patents that include methods and systems for advertising on the Web, opening the first major legal battle among big technology companies in social media.
The lawsuit, filed in a San Jose, California federal court yesterday, marks a major escalation of patent litigation that has already swept up the smartphone and tablet sectors and high-tech stalwarts such as Apple Inc, Microsoft Corp and Motorola Mobility Holdings Inc.
Yahoo!’s patent lawsuit follows Facebook’s announcement of plans for an initial public offering that could value the company at about $100 billion.
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.
In an emailed statement, Yahoo! said it was confident it would prevail.
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“Unfortunately, the matter with Facebook remains unresolved and we are compelled to seek redress in federal court,” the company said in a statement.
Yahoo, one of the Web’s pioneering companies, has seen its revenues decline in recent years at a time when rivals such as Facebook and Google have thrived. In January, Yahoo appointed former PayPal President Scott Thompson as its new chief executive, replacing Carol Bartz, who was fired in September.
Yahoo said late last month it was seeking licensing fees from Facebook over its patents and that other companies have already agreed to such licensing deals.
IPO companies vulnerable
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 IPO process.
“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,” Chien said.
“So that might make Facebook more willing to resolve its differences with Yahoo.”
Yahoo has used similar timing to its advantage in the past. Google agreed to issue shares to Yahoo nine days before Google went public in 2004 in exchange for a license to Yahoo's patents. Google later took a $201 million non-cash charge related to the transaction.
In deciding to sue Facebook, Yahoo has retained the same law firm, Quinn Emanuel Urquhart & Sullivan, used by Google and other manufacturers in many Android-related smartphone patent cases. Google is a player in social media with its Google+ service.
Quinn Emanuel also counts social gaming service Zynga Inc as a client, according to the law firm's website.
Yahoo has not said whether it will bring patent claims against other social networking companies and a Google spokesman declined to comment on Quinn Emanuel's involvement. Zynga also declined to comment.
In the lawsuit, Yahoo says Facebook was considered "one of the worst performing sites for advertising" prior to adapting Yahoo's ideas.
"Mr. Mark Zuckerberg, Facebook's founder and CEO, has conceded that the design of Facebook is not novel and is based on the ideas of others," the lawsuit said.
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Only two of the 10 patents at issue are directly related to social networking technology. Most focus on online advertising, including methods for preventing "click fraud," as well as privacy and technology for customizing the information 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.
Several social networking companies, including Facebook, have seen an uptick in patent claims asserted against them as they move through the IPO process.
However, most of those lawsuits have been filed by patent aggregators that buy up intellectual property to squeeze value from it via licensing deals and none by a large tech company such as Yahoo.
The lawsuit is a change for Yahoo because the company has never initiated offensive patent litigation against such a large publicly traded company, according to a search of federal court dockets on legal database Westlaw, a Thomson Reuters unit.
A classic defense for companies targeted with patent claims is to threaten a countersuit using its own patents. But Yahoo possesses far more patents than Facebook. According to a U.S. government database, Yahoo has over 3,300 patents and published patent applications, while Facebook has 160.
The case in U.S. District Court, Northern District of California is Yahoo Inc. v. Facebook Inc., 12-cv-1212.
(Reporting By Dan Levine and Alexei Oreskovic; editing by Andre Grenon)