Yahoo warns Facebook of a potential patent fight

As Yahoo struggles to keep up with younger competitors, the Web portal company is weighing a new tactic: threatening legal action over its patent holdings.

Yahoo is seeking to force Facebook into licensing 10 to 20 patents over technologies that include advertising, the personalization of Web sites, social networking and messaging, people briefed on the matter told DealBook.

The two companies spoke on Monday to discuss the issue, with Yahoo contending that Facebook is infringing on 10 to 20 patents, according to these people, who were not authorized to discuss the issue publicly. Yahoo is asking Facebook to pay licensing fees or risk facing a lawsuit.

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

Barry Schnitt, a spokesman for Facebook, said in a statement: "Yahoo contacted us the same time they called The New York Times and so we haven't had the opportunity to fully evaluate their claims."

Patent fights are nothing new in Silicon Valley, with the realm of smartphones having become the most visible backdrop for such battles. Google paid $12.5 billion for Motorola Mobility last year largely to get access to the phone maker's intellectual property. And a consortium of companies led by Apple and Microsoft paid $4.5 billion for more than 6,000 patents held by Nortel, the defunct communications equipment maker.

Apple, Samsung and other smartphone makers have also been locked in an array of courtroom brawls around the world over various patents.

But intellectual property battles have yet to arise en masse among social networking players.

It is unclear when Yahoo and Facebook began discussions over possible infringement of the former's intellectual property. But Yahoo's saber-rattling happens to come at a delicate time for Facebook, which is preparing to go public this spring in one of the most anticipated market debuts in years.

Yahoo talked up the value of its more than 1,000 patents late last year, amid a strategic review that included potentially selling a stake to outside investors.

The patents at issue include some of the first awarded to Yahoo, people close to the company said. It also gained a trove of intellectual property from the 2003 purchase of Overture Services, a search-advertising company that sued companies like Google over patent issues.

In its statement, Yahoo said that other unspecified Web technology companies have already licensed some of the patents in question.

It is unclear how much money Yahoo could wrangle out of any potential agreement with Facebook. After purchasing Overture, Yahoo settled the acquired company's battle with Google in 2004, receiving 2.7 million shares in the search giant before it went public.

Last year, IEEE Spectrum, a technology publication, rated Yahoo's patents as the most valuable among those for communications and Internet services.

Some investors believe that Yahoo's intellectual property could give the company ammunition against Facebook. Eric Jackson, a managing member of the hedge fund Ironfire Capital, argued on Forbes in November that the Web pioneer should use its patent armory to wring a handsome payout from Facebook.

(Published by NY Times - February 27, 2012)