Yahoo Sues Facebook in Patent Shakedown

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Mario Anzuoni / Reuters

Yahoo’s betting that good patents trump great products, as the company sues Facebook for 10 counts of patent infringement.

The lawsuit covers messaging, privacy options, advertising, customization and, of course, social networking. In a court filing, Yahoo uses Facebook CEO Mark Zuckerberg’s own words against him, quoting him as saying that “Getting there first is not what it’s all about.”

“For much of the technology upon which Facebook is based, Yahoo! got there first and was therefore granted patents by the United State [sic] Patent Office to protect those innovations,” says Yahoo’s court filing, which is posted in full at All Things Digital.

(MORE: New Yahoo CEO Prepares ‘Thousands’ of Layoffs: Report)

Yahoo is seeking triple damages and the right to prevent Facebook from operating with Yahoo patents.

Why sue now? Two reasons are most likely: First, Yahoo has a new CEO, Scott Thompson, who took over in January. As Kara Swisher of All Things Digital reported, the lawsuit is largely Thompson’s initiative, and could be a way to show Wall Street that the company is serious about finding new revenue. Second, Facebook is in its quiet period before an initial public offering, so a patent lawsuit could hurt Facebook’s opening stock price, thereby giving Yahoo more bargaining power. (In 2004, Yahoo sued Google before the search company went public, and they settled 10 days before Google’s IPO.)

But suing Facebook may come with its own price for Yahoo. Top techies within Yahoo opposed the move due to a company ethos of only using patents for defensive purposes, Swisher reported.

Outside the company, Yahoo is taking heat from tech watchers for suing another web company. As venture capitalist Fred Wilson wrote:

But worse, Yahoo! has broken ranks and crossed the unspoken line which is that web companies don’t sue each other over their bogus patent portfolios. I don’t think there’s a unique idea out there in the web space and hasn’t been for well over a decade.

The comments section of Wilson’s blog also has some great insights, like this comment from open source developer Sean Dague:

This exposes one of the biggest dangers of software patents. We’ve now got a class of companies that have a lot of them for defensive purposes, that are starting to see their business models erode under the next class of companies. New management comes in and cares little for what the company does, and just see this “untapped asset”, so convert a previously productive company to a legal troll.

The irony is that Yahoo stocks are down roughly 2 percent since mid-day Monday, when news of the lawsuit broke. I guess Wall Street understands desperation.

MORE: Want to Predict the Stock Market? Try Yahoo

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