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Facebook Strikes Back

In counter-attack,
Facebook strikes back at Yahoo
And buys more patents

As previously reported in this blog, Yahoo sued Facebook last month for patent infringement.

Now Facebook has sued Yahoo in return, claiming that Yahoo has violated Facebook patents that cover 80% of Yahoo’s 2011 revenue, amounting to more than $4 billion.  The businesses involved include display advertising, content personalization, and photo sharing, according to Facebook.

At the time Yahoo originally sued Facebook, some commentators suggested that it might be able to force a speedy settlement, to prevent the suit from interfering with Facebook’s imminent $5 billion IPO.  The new suit by Facebook suggests that Facebook is willing to fight.  Alternatively, Facebook might attempt to settle by giving Yahoo shares of Facebook – a tactic Google used to settle a patent dispute in 2004.

Facebook, which reportedly owned only 56 patents and 503 US patent applications at the time Yahoo filed suit, subsequently acquired 750 patents from IBM.  According to its IPO filing, Facebook also had 33 corresponding patents and 149 filed applications in foreign countries.  Acquired patents accounted for $51 million of Facebook’s goodwill and intangible assets in 2011, up from $33 million in 2010.

Facebook employees only invented two of the technologies covered by the patents cited in its suit against Yahoo.  The rest were purchased, and some were granted before Facebook was founded in 2004.

Some have questioned whether Yahoo might be shooting itself in the foot by suing Facebook, which is one of its most important partners.  Yahoo, which has suffered declining sales for the past three years, boosted traffic from Facebook 300% from September to December of last year by integrating Facebook’s news activity feature into its own sites.

Yahoo’s new CEO, Scott Thompson, recently laid off 2,000 Yahoo employees – 14% of the company’s workforce.  It was the largest layoff in the company’s 17-year history.

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