Yahoo Smacks Facebook With Patent-Infringement Claims

Yahoo threatened to sue partner Facebook for intellectual-property infringement, spanning social networking, messaging, personalization and online ad patents.

In a classic high-tech case of if-you-can't-beat-them-sue-them, Yahoo (NASDAQ:YHOO) Feb. 27 accused partner Facebook of infringing on patents related to social networking and other technologies.

Yahoo is struggling to boost user engagement at a time when it is losing eyeballs to Facebook, Google, Twitter and other Internet companies. Yahoo wants Facebook to pay to use technology spanning 10 to 20 patents covering online advertising, Website personalization and social networking, according to The New York Times.

If Yahoo doesn't secure the licensing deals it wants, the company said it would sue Facebook, which is girding for an initial public offering worth some $75 billion to $100 billion this year.

"Yahoo has a responsibility to its shareholders, employees and other stakeholders to protect its intellectual property," a Yahoo spokesman said. "We must insist that Facebook either enter into a licensing agreement, or we will be compelled to move forward unilaterally to protect our rights."

Adding insult to an already gutsy claim, Yahoo also took its gripe to The New York Times around the same time it informed Facebook of its complaint, according to the social network.

"Yahoo contacted us at the same time they called The New York Times, and so we haven't had the opportunity to fully evaluate their claims," the Facebook spokesman said.

Yahoo has more than 1,000 patents, many of which are valuable, according to one-time Yahoo investor Eric Jackson, founder of Ironfire Capital.

Jackson wrote in Forbes last November that Facebook is vulnerable to IP claims from Yahoo. The Internet company commands valuable patents related to display ads, social networking, Inktomi's spider search technology, processing unsolicited bulk email, transmission of multicast media between networks, digital content management and data center management.

"Facebook's future revenue stream that its investors are counting on to help the company overtake Google in market capitalization is virtually all derived from ads," Jackson wrote. "It appears that a significant amount of that ad revenue will infringe on Yahoo's paid search, display ad and social networking patents, according to the contacts I've spoken to."

The news comes just two-plus months after Yahoo augmented its content partnership with the social network. Yahoo in June 2010 began integrating Facebook across more than 15 of its sites, adding a much-needed social component to keep its 600 million-plus users engaged and returning to its content.

Yahoo enhanced that agreement in December 2011, bringing the news activity feature to 26 more Yahoo Web properties and adding a new notifications feature to alert users to social conversations conducted across Yahoo Websites.

More than 12 million people have opted in to use the news activity feature, which lets users share what they are reading about when users mouse over their Facebook profile photo on Yahoo.

While Yahoo benefits from Facebook's social content, Facebook has gobbled Yahoo's display ad market share the last few years. Facebook is one of the main reasons Yahoo's U.S. display ad share has been nearly halved, from 20.8 percent in 2008 to 10.8 percent in 2011, according to eMarketer.

The lawsuit threat, which resembles some of the dozens of patent-infringement claims lobbed about in the mobile-computing space today, could be one of the ways new CEO Scott Thompson plans to add some material health to Yahoo's bottom line.

Thompson has suggested he wants to turn Yahoo into more of a technology company than an online Internet power. Leveraging Yahoo's patent portfolio is one way to add some sorely needed cash.