Yahoo sues Facebook over wide-ranging patents

Yahoo has sued Facebook over the alleged infringement of 10 patents, which cover functions from advertising and privacy to instant messaging and social networking itself.

Yahoo has sued Facebook over the alleged infringement of 10 patents, covering functions from advertising to social networking itself. Image credit: Yahoo

The legal action, which Yahoo threatened just two weeks ago, was launched in a San Jose district court on Monday. The company is not just after royalties — it says it wants the court to completely stop Facebook from using the technology described in the patents.

Facebook reacted by saying it found the suit "puzzling", as Yahoo has "substantially benefited" from its partnerships with Facebook.

"To build a successful website, users need to have easy access to many functions and tasks such as messaging and privacy options," Yahoo said in its suit. "The website owner needs revenue through functions such as advertising. All of these functions involve Yahoo's innovations."

"Without Yahoo's achievements, websites such as Facebook would not enjoy repeat visitors or substantial advertising revenue," it added. The suit notes that Facebook was "considered one of the worst-performing internet sites for advertising" before it started using Yahoo's patented technology.

In a statement, Yahoo said its negotiations with Facebook had not worked out. "We are compelled to seek redress in federal court. We are confident that we will prevail," it said.

Wide-ranging patents

The patents involved in the case are fundamental and wide-ranging. One of the broadest is US patent number 7,747,648, applied for in 2005 and granted in 2010, which describes 'World modeling using a relationship network with communication channels to entities'. Yahoo refers to this as its "social-networking patent" and says Facebook Pages and Facebook groups "at least" infringe on it.

Some of the patents cover the tailoring of ads to the user, the positioning of ads and the monitoring of ad clicks for potential click fraud. Another, which deals with instant messaging, is violated by Facebook Messages, according to Yahoo.

Others let people select which information they want to share with certain people, and allow user customisation of displayed information — a function Yahoo says is used in Facebook's News Feed. Social commenting is another Facebook feature that Yahoo says is based on its technology.

Royalties

Crucially, Yahoo claims payment of royalties alone — even past-due royalties — would not provide adequate compensation for the alleged infringement.

"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," it said in its suit.

"Even if Facebook were to subsequently pay past-due royalties, it would still enjoy a market share it has developed during its period of 'free riding' on Yahoo's intellectual property. Yahoo would likewise lose its portion of the market share for this period," it continued.

Meanwhile, Facebook said it is "disappointed that Yahoo, a long-time business partner of Facebook and a company that has substantially benefited from its association with Facebook, has decided to resort to litigation".

"Once again, we learned of Yahoo's decision simultaneously with the media. We will defend ourselves vigorously against these puzzling actions," Facebook's statement read.

Yahoo's move is reminiscent of its suit against Google a decade ago. That court case, which dealt with AdWords functionality, was settled shortly before Google floated publicly, and the deal saw Yahoo come away with 2.7 million shares of common Google stock.

Facebook IPO

Facebook is now gearing up for its own IPO, which is widely expected to happen in May.

When ex-PayPal president Scott Thompson took over at Yahoo at the start of this year, he promised to give the ailing company its "next era of success". It appears that the size of Yahoo's patent portfolio — thought to be 1,000-strong — will play a part in that era.

"Yahoo, because it's been in the game longer, has a bigger portfolio of patents," Haynes and Boone lawyer Clark Stone told ZDNet UK's sister site CNET News. "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."

BGC Partners technology analyst Colin Gillis told the BBC that there was "an air of desperation" about the suit, adding that the move would not derail Facebook's flotation.