Yahoo has filed a patent infringement lawsuit against Facebook, essentially arguing that the social network misappropriated most of the technologies that helped turn it into a multibillion-dollar sensation (see the lawsuit filing below).
Among other things, the lawsuit claims that "Facebook's entire social network model" was based on patented Yahoo technology.
The lawsuit points to the News Feed in Facebook, which it said was "directly linked to Facebook's infringement of Yahoo's Customization Patents." It adds that privacy controls implemented by Facebook "practice Yahoo's Privacy Patents."
Just as significantly, the lawsuit makes the argument that much of Facebook's advertising formats are based on technologies patented by Yahoo.
"Yahoo is harmed by Facebook's use of Yahoo's patented technologies in a a way that cannot be compensated for by payment of a royalty alone," the lawsuit claims. "Facebook's use of Yahoo's patented technologies has increased Facebook's revenue and market share because it does not have to recover the costs or time involved in the development of the technology. Yahoo, in turn, must bear the costs of the development of the technology."
Yahoo's legal gambit comes less than six weeks after Facebook filed the paperwork for an initial public offering. That IPO is expected to take place sometime this spring.
"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. "Once again, we learned of Yahoo's decision simultaneously with the media. We will defend ourselves vigorously against these puzzling actions."
For its part, a spokesman representing Yahoo issued a statement maintaining that the company's investment in research and development "has resulted in numerous patented inventions of technology that other companies have licensed. These technologies are the foundation of our business that engages over 700 million monthly unique visitors and represent the spirit of innovation upon which Yahoo! is built. Unfortunately, the matter with Facebook remains unresolved and we are compelled to seek redress in federal court. We are confident that we will prevail."
The spokesman declined further comment.
This isn't the first time Yahoo has mounted a legal attack against a hot, soon-to-be-public Internet company. In August 2004, Yahoo settled a patent dispute with Google over pay-per-click and bidding systems that give sites higher placement in Web results. The settlement came less than two weeks before Google went public.
In that settlement, Google agreed to give Yahoo 2.7 million shares of its stock in a deal valued at the time as high as $290 million. Google also agreed to license several Yahoo patents.
"Litigation is a business tool," said Clark S. Stone, a patent expert with the law firm of Haynes and Boone. He suggested that the companies may try to settle out of court, if possible. "This sort of thing is not in many instances designed to solve problems where you have a company technically stepping on another company's toes. Yahoo, because it's been in the game longer, has a bigger portfolio of patents...Whether or not anything on Facebook infringes any Yahoo patents--assuming they're valid--probably going is going to be the subject of pretty protracted litigation or a fairly quick business dispute."
The lawsuit is the first major initiative by Yahoo since the appointment of Scott Thompson as CEO in early January.
Following are some of the patent abstracts from the filing that Yahoo claims Facebook violated:
U.S. Patent No. 7,599,935
Control for enabling a user to preview display of selected content based on another user's authorization level
Abstract: Enabling a first user to preview content as it would be seen by a second user, if the second user had a selected user relationship with the first user. The selected user relationship may include a relationship degree, a relationship category, a relationship rating, and/or other form of relationship. In one embodiment, a user interface enables the first user to assign user relationships to portions of content and to other users. The first user selects a user relationship, which is used to access those portions of content that are associated with the first user and assigned the selected user relationship. The corresponding portions of content are used to generate a preview display for the first user, illustrating the portions of content that would be accessible to other users assigned the same user relationship or assigned a closer user relationship. Preview may be generated by a server or a local client.
U.S. Patent No. 7,373,599
Method and system for optimum placement of advertisements on a webpage
Abstract: A method and system for placement of graphical objects on a page to optimize the occurrence of an event associated with such objects. The graphical objects might include, for instance, advertisements on a webpage, and the event would include a user clicking on that ad. The page includes positions for receipt of the object material. Data regarding the past performance of the objects is stored and updated as new data is received. A user requests a page from a server associated with system. The server uses the performance data to derive a prioritized arrangement of the objects on the page. The server performs a calculation regarding the likelihood that an event will occur for a given object, as displayed to a particular user. The objects are arranged according to this calculation and returned to the user on the requested page. The likelihood can also be multiplied by a weighting factor and the objects arranged according to this product.