On Monday Yahoo Inc filed a lawsuit against Facebook in the U.S. District Court for the Northern District of California, claiming that the social website infringes on ten patents that include methods and systems for advertising on the Internet. The patent lawsuit conveniently follows news of Facebook's upcoming initial public offering which will reportedly value the company around $100 billion.
Facebook spokesman Jonathan Thaw told Reuters that the company had no idea Yahoo filed a lawsuit until the media began publishing reports. "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.
Yahoo's timing is no coincidence. Companies are typically more vulnerable to legal attacks when they're about to go public. The last thing they need is a financially draining, drawn-out litigation, thus companies in Facebook's current position are likely to resolve the issue quickly and move on. There's also a reported trend of lawsuits of this kind as of late: social networking companies accused of patent infringement right when they're moving through the IPO process. However these have typically been filed by patent aggregators who hoard them for licensing fees.
For its suit against Facebook, Yahoo has hired on Quinn Emanuel Urquhart & Sullivan to defend its case, the same law firm that Google and other manufacturers use in Android-related smartphone patent cases. Social gaming service Zynga is also another client who thus declined to comment on Yahoo's lawsuit.
According to Reuters, Yahoo stated last month that it was seeking licensing fees from Facebook over its patents -- fees that other companies have already agreed to pay. This is supposedly Yahoo's first offensive patent litigation against a large publicly traded company.
"Facebook's entire social network model, which allows users to create profiles for and connect with, among other things, persons and businesses, is based on Yahoo's patented social networking technology," the lawsuit states. "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."
Out of the ten patents named in the lawsuit, only two are directly related to social networking technology. Most of the patent claims focus on online advertising including methods of preventing "click fraud," ad format (like Facebook's Premium Video Comment Ads), technology for customizing the information users see on a Web page and more. Yahoo even claims that Facebook's News Feed, the primary way of viewing friends' activity, infringes Yahoo's customization patents.
Yahoo's lawsuit also claims that a simple back-payment of royalties won't be enough to resolve the issue. "Yahoo is harmed by Facebook's use of Yahoo's patented technologies in a way that cannot be compensated for by payment of royalty alone," the lawsuit states. "Facebook's use of Yahoo's patented technologies has increased Facebook's revenue and market share because it does not have to recover the cost or time involved in the development of the technology."
If Facebook is indeed infringing upon Yahoo's patents, then the lawsuit could open the door to additional lawsuits with other companies. "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. Of course, guilty verdicts would depend on whether an individual judge defines Yahoo's patents broadly or narrowly.