Patent war unleashed as Yahoo sues Facebook

Workers use a crane to move a section of a Yahoo! billboard onto a truck on December 21, 2011 in San Francisco, California (Justin Sullivan / Getty Images / AFP)
Yahoo has kicked off the biggest patent battle in social networking history by suing Facebook over 10 patents. Facebook pledged to defend itself forcefully amid speculation Yahoo is trying new ways to raise funds as its ship is sinking.

The Yahoo Inc. lawsuit filed Monday covers advertising, privacy controls and social networking. The move comes after the former web giant threatened to sue Facebook last month, saying it would seek licensing fees from the social network over the use of its patents.Yahoo also said other companies have already agreed to such licensing deals.

It is reported that only two of the 10 patents at issue are directly related to social networking technology. For example, one patent cited by Yahoo covers a method for people to communicate through a virtual entity, "enabling users to easily share their experiences," according to patent filings. The rest concern online advertising, including methods for preventing "click fraud," as well as privacy and technology for customizing the information users see on a Web page.

Yahoo claims that its patented technologies attract more than 700 million unique visitors each month.

One of the Web's pioneering companies, defended its lawsuit by saying it has invested "substantial resources in research and development" over the years that have led to technology patents that other companies have licensed.

Facebook shot back by saying the relationship had been mutually beneficial.

"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."

The giant social network Facebook has promised to defend itself vigorously. However, Silicon Valley law professor Colleen Chien says the circumstances of the case might force Facebook to be “more willing to resolve its differences with Yahoo," Reuters cites her as saying.

The lawsuit comes as an extremely vulnerable Facebook prepares to go public. Potentially valued at $100 billion, its IPO could be one of the largest in history.

Yahoo has seen its revenues decline in recent years as the rise of Facebook has eaten away at its position. With the upcoming Facebook IPO and Yahoo's failing fortunes, some believe the timing of the lawsuit is not a coincidence.

Yahoo’s newly appointed chief executive Mr. Thompson announced publicly the company needs to explore ways to generate revenue from new and underutilized parts of its business.

"It's common for older companies whose businesses aren't doing as well as they'd like to file suits like this" against newcomers that plan to go public, said Michael Barclay, a volunteer lawyer at the Electronic Frontier Foundation, as quoted by the Wall Street Journal.

Yahoo has already proved the strategy can be a success. In 2004 it made hundreds of millions of dollars from a patent settlement that it reached with Google just nine days before Google went public. The company agreed to issue shares to Yahoo in exchange for licensing rights to Yahoo's patents. Founded in March 1996, Yahoo has filed more than 1,000 patents covering various aspects of its operation.