Google, Yahoo Make Nice over Patent and Stock Disputes

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.

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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.

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