Google, Yahoo Make Nice over Patent and Stock Disputes

By Matthew Hicks  |  Posted 2004-08-09 Print this article Print

Ahead of Google's planned IPO, the close rivals settle battles over a search-engine advertising patent and a stock-issuance agreement. Google expects at least a $260 million hit from the deal.

Search rivals Google Inc. and Yahoo Inc. have settled disputes over a search-engine advertising patent and a services agreement ahead of Googles high-profile initial public offering. The two companies announced on Monday that they reached a settlement agreement in a patent-infringement lawsuit brought by Yahoos Overture Services Inc. division in April 2001 against Google. They also resolved a dispute over the amount of shares Google was required to issue Yahoo as part of a 2000 services agreement. The settlement will likely hurt Googles bottom line this quarter as it nears its $3 billion IPO. Google is issuing 2.7 million shares of Class A stock to Yahoo as part of the settlement, according to an amended S-1 filing with the Securities and Exchange Commission.
As a result, Google warned that it expects to record a net loss for the third quarter ending Sept. 30 after incurring a non-cash charge of between $260 million and $290 million, the filing stated. To soften the blow, Google expects to receive a tax benefit from the charge of between $100 million and $115 million.
Click here to read one opinion on why investors should be wary of Googles IPO. In the patent dispute, Overture had accused Google of infringing on its patent for bidding on keywords in paid-search results. Both companies sell sponsored search listings where advertisers place pay-per-click bids on search terms. Google, in its court filings, had denied that its AdWords program infringed on the patent. But as part of the settlement, Google has agreed to license the patent, No. 6,269,361, as well as several related patents, and Overture has dropped its lawsuit, the companies said. The other dispute between the companies centered on June 2000 services agreement from which Yahoo held a warrant to buy 3.7 millions shares of the Google stock. Google, citing a provision in the warrant, issued Yahoo 1.2 million shares in June 2003. But Sunnyvale, Calif.-based Yahoo balked and has been arguing that it was due a greater number of shares, according to the SEC filing With the settlement, both companies have released any claims against each other in the warrant dispute. The settlement news comes as Mountain View, Calif.-based Google has encountered delays and problems with its IPO. The Associated Press last week reported that Google was delaying the offering by a week because of logistical issues with its auction-based process. Meanwhile, Google earlier this month disclosed a legal snafu in the way it had issued more than 23 million shares to employees and consultants. And financial advisers and analysts have expressed concern that Google has overpriced its offering with its estimated selling price of between $108 and $135 a share. Check out eWEEK.coms Enterprise Applications Center at for the latest news, reviews and analysis about productivity and business solutions.

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Matthew Hicks As an online reporter for, Matt Hicks covers the fast-changing developments in Internet technologies. His coverage includes the growing field of Web conferencing software and services. With eight years as a business and technology journalist, Matt has gained insight into the market strategies of IT vendors as well as the needs of enterprise IT managers. He joined Ziff Davis in 1999 as a staff writer for the former Strategies section of eWEEK, where he wrote in-depth features about corporate strategies for e-business and enterprise software. In 2002, he moved to the News department at the magazine as a senior writer specializing in coverage of database software and enterprise networking. Later that year Matt started a yearlong fellowship in Washington, DC, after being awarded an American Political Science Association Congressional Fellowship for Journalist. As a fellow, he spent nine months working on policy issues, including technology policy, in for a Member of the U.S. House of Representatives. He rejoined Ziff Davis in August 2003 as a reporter dedicated to online coverage for Along with Web conferencing, he follows search engines, Web browsers, speech technology and the Internet domain-naming system.

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