Defriending Facebook: Intellectual Property Analysis of Yahoo! Inc. v Facebook, Inc.

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Report Date: 
Thu, 2012-03-15

On March 12, 2012, Yahoo! filed a patent infringement suit against Facebook. In the complaint, Yahoo! alleges that “Facebook's entire social networking model … is based on Yahoo!'s patent social networking technology.” A bold statement, since all but one of the asserted patents underwent extensive claim amendments AFTER Facebook was incorporated in 2004. What does this mean? It means the asserted Yahoo! patents have the dual benefit of a pre-2004 application date and a post-2004 visibility into technologies that Facebook had already reduced to practice.

In the wake of filing for its Initial Public Offering, Facebook has run into challenges in the patent world. Facebook’s strategy of backfilling its portfolio to retroactively protect itself may not be working as well as they had hoped, and apparently, Yahoo! has noticed.

This isn’t the first time Yahoo! has parted ways with a “friend” right before they went public – a time when a company is most vulnerable. In 2004, Yahoo! dropped Google as its default search provider in the U.S., two months before Google filed for its IPO. Later that year, Google settled with Yahoo! for stocks that were estimated to be worth over $260 million in a case Yahoo! had inherited from its acquisition of the search marketing firm Overture Services.

This time, Yahoo! has “defriended” Facebook. Looking at the ruling of a previous patent infringement suit against Facebook, it is suggested that targeting the company’s advertising core is where the treble-damages lie. Yahoo! is doing this and more, targeting not only the advertising portion of Facebook, but aspects of social networking as well.

Yahoo!'s litigation does not seem to be an effort to protect its innovation, but more of an effort to bolster its declining market value and perceived relevance. Though Yahoo!’s stock has enjoyed a bit of investor helium since the litigation announcement, it has been unable to regain its pre-2008 glory. And as mentioned in a February 28, 2012 Bloomberg report (when Yahoo! was only pursuing a licensing agreement with Facebook), many of the inventors of Yahoo!'s social networking patents have already left the company. (A list of the inventors of the asserted Yahoo! patents can be found in Appendix A, including, in bold, the three inventors mentioned in the Bloomberg report.)

All things considered, Yahoo!’s suit will make one group of investors happy. The question is, will it be Yahoo!’s or Facebook’s… or a yet unannounced third party who actually could be a Facebook and Yahoo! spoiler? And even further: when they’re both shaking off the post-conflict stupor singing, “Nobody Knows the Trouble I’ve Seen”, who will be the party truly responsible for the massive market confusion and net consumer loss?