Talks fall apart: Yahoo to sue Facebook (rumor)

Last week, Yahoo became a patent troll by threatening Facebook with patent war. Yahoo CEO Scott Thompson is rumored to be the one to blame, in addition to the massive layoffs he's planning for the company. Now it seems that talks with Facebook have fallen apart, meaning Thompson's first big move will either be an announcement to cut thousands of jobs, or the filing of a massive lawsuit. Both events are still in the rumor box.

Yahoo will seek "formal action" against Facebook over alleged patent infringements, the most likely of which is a lawsuit, according to a source briefed on the aborted talks between the companies cited by Business Insider. Yahoo will reportedly claim Facebook is using its inventions in online advertising and social networking without paying patent fees. Yahoo may even go as far as seeking a percentage of Facebook's revenues going forward.

Yahoo's stance is unchanged. "Yahoo has a responsibility to its shareholders, employees and other stakeholders to protect its intellectual property," a Yahoo spokesperson said in a 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."

Facebook also hasn't issued a new statement. The one made at the time of the breaking news said the company hasn't had "the opportunity to fully evaluate" Yahoo's claims. That being said, in the social networking giant's updated IPO filing today, however, Facebook briefly mentioned flagged its potential legal battle with Yahoo. Menlo Park says it received a letter from Yahoo, claiming that Facebook infringes on 13 of Yahoo's patents.

Facebook, which is investigating the claims, said Yahoo had not begun any legal action. More generally, Facebook said it expects the number of lawsuits against it to increase. Here's the relevant excerpt from today's IPO filing update:

We presently are involved in a number of lawsuits, and as we face increasing competition and gain an increasingly high profile, including in connection with our initial public offering, we expect the number of patent and other intellectual property claims against us to grow. For example, on February 27, 2012, we received a letter from Yahoo! Inc. that alleged that a number of our products infringe the claims of 13 of Yahoo's patents. We are still in the process of investigating the allegations contained in the letter. To date, Yahoo has not commenced any legal action against us, but it may do so in the future.

The United States Patent and Trademark Office (USPTO) shows just how vulnerable a new technology company can be at the hands of an old company when it comes to a patent war. Yahoo has thousands of patents while Facebook has 62, though it's hard to say if Facebook will argue Yahoo infringes on any of them.

See also:

• Yahoo threatens Facebook with patent war
• Yahoo redesigns search results pages, adds more Facebook
• Yahoo redesigns image search, adds a dedicated Facebook tab
• Bing adds more Facebook features to Social Search
• Microsoft puts Facebook into Bing Bar
• Microsoft starts providing search results to Yahoo