Yahoo is making one of its boldest moves: suing Facebook for patent infringement. Yahoo alleges the social-networking giant is trespassing on various technologies that Yahoo innovated.
A lawsuit filed Monday in U.S District Court for the North District of California claims Facebook is infringing on 10 patents belonging to the suffering search-engine giant.
"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," Yahoo's attorneys wrote in the lawsuit.
Specifically, Yahoo claims Facebook is infringing on patents that cover its technologies for privacy, advertising, site customization, social networking and integrated communications in social networking.
Yahoo points to examples of Facebook's particular trespasses, which include the Facebook News Feed. Yahoo claims the News Feed infringes on its customization patents. Meanwhile, Facebook's Premium Video Comment Ads are also allegedly infringing on Yahoo's patents.
Yahoo may be seeking licensing fees from its social-media competitor. Meanwhile, Facebook seemed surprised by the filing.
"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 said. "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."
Yahoo's timing has been duly noted by industry watchers. Facebook is planning to hold an initial public offering of its stock. The IPO for the social network could raise $75 billion to $100 billion, making the company flush with cash.
"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."
Yahoo's Big Gamble
Greg Sterling, principal analyst at Sterling Market Intelligence, called Yahoo's move to sue Facebook a big gamble. Sterling said he assumed Yahoo has done a careful evaluation and believed that at least some of its claims would prevail at trial.
Yahoo, he reminded, successfully sued Google and others several years ago under patents related to paid-search advertising.
"If Yahoo succeeds with this action it could be worth billions to the company over time if it sets up a licensing scheme with Facebook. When Yahoo sued Google it got stock eventually worth $1.5 billion and it gave the latter a perpetual license to the [intellectual property]," Sterling said.
"Yahoo may be seeking a long-term 'annuity' from Facebook in this case. However Yahoo risks alienating a partner and doing damage to its image among industry insiders. It could also lose at trial, although I think that's less likely."