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Just weeks before IPO, Yahoo hits Facebook with patents lawsuit

The social network’s preparations for stock market glory are dampened by news of a lawsuit brought by Yahoo.

Facebook chief executive Mark Zuckerberg: the social network's preparations for an IPO have been hit by a patent lawsuit filed by Yahoo.
Facebook chief executive Mark Zuckerberg: the social network's preparations for an IPO have been hit by a patent lawsuit filed by Yahoo.
Image: Paul Sakuma/AP

YAHOO HAS INITIATED legal action against Facebook in a dispute over patents, just weeks before the social-networking heavyweight is due to cash in with its initial public offering of stock.

In court papers filed yesterday Yahoo accused Facebook of infringed 10 patents covering advertising, privacy controls and social networking. Yahoo had threatened to sue Facebook last month, insisting that the social network license its patents.

Facebook vowed to defend itself vigorously against what it described as Yahoo’s “puzzling actions”.

“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,” Facebook said in a statement. Yahoo ties a lot of its online services to Facebook, which has helped it attract users.

As with many patent suits, this one will likely be resolved in a settlement or licensing deal – but Facebook will lament the timing of the case, which may cast a spotlight on its vulnerabilities as the company tries to complete an IPO this spring.

At the end of 2011, Facebook held just 56 patents in the United States, a relatively small number compared with other big tech companies. Yahoo, by comparison, owns more than 1,000 patents.

That trove of patents may come in handy for Yahoo, which has seen its revenue fall steadily over the past three years. But it could also cast the company as desperate, trying to extract money from soon-to-be-public Facebook.

Yahoo made hundreds of millions of dollars from a patent settlement that it reached with Google just before the Internet search leader went public in 2004. Facebook’s IPO is expected to dwarf Google’s, valuing the social network at as much as $100 billion.

Yahoo defended its lawsuit, saying it has invested “substantial resources in research and development” over the years leading to technology patents that other companies have licensed. Its lawsuit says that without Yahoo’s innovations, Facebook and other websites would not enjoy “repeat visitors or substantial advertising revenue.”

Among other claims, the lawsuit says that Yahoo’s patents cover basic social networking ideas such as customising website users’ experiences to their needs and interests. It also argues that Yahoo’s advertising patents cover ways of generating ads that relate to individual users, increasing revenue for website operators.

Yahoo has filed the lawsuit in a federal court in San Jose, California, and is seeking a jury trial for unspecified damages.

- Barbara Ortutay

Read: Board shake-up at Yahoo as chairman and three others leave

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