About The Yahoo-Facebook Lawsuit


Ahh… the murky waters of patent law

Across the tech world, the immediate reaction to Yahoo suing Facebook for patent infringement was one of outrage and utter contempt–a clear example of a broken patent system and a low-blow attempt from a desperate Yahoo to squeeze a ton of cash out of the company it once tried to buy.

Paul Graham, the Y Combinator co-founder who sold his company, Viaweb, to Yahoo in 1998 for about $49 million, was blunt in his criticism. “This was a clumsy move that will blow up in Yahoo’s face,” he said in an e-mail. “The biggest priorities for any tech company right now is hiring, and this is going to make it impossible for them to hire good people.”

From Fred Wilson, the VC/blogger who’s a principal of Union Square Ventures: “Yahoo! has broken ranks and crossed the unspoken line which is that web companies don’t sue each other over their bogus patent portfolios,” he wrote on his blog. “I used to care about that company for some reason. No more. They are dead to me. Dead and gone. I hate them now.”

And then came Mark Cuban, who of course made his gajillions by selling Broadcast.com to Yahoo for more than $5 billion in Yahoo stock in 1999. He took to his blog and, in a fiercely sarcastic post called “I Hope Yahoo Crushes Facebook in its Patent Suit,” concluded this way: “I hope Yahoo is awarded 50 billion dollars. It’s the only way that consumers will realize what is at stake with patent law as is.”But here’s another view of how this nasty Silicon Valley fight might play out: a team of lawyers and dealmakers from Facebook and Yahoo hole up for days on end and hammer out a deal in which Faceook does more than license some of the patents from Yahoo. Instead, it buys them outright for billions–an outcome that could ultimately help both companies.

This scenario was put forth to me by Erin-Michael Gill, the chief intellectual property officer for MDB Capital, an investment bank that specializes in analyzing and valuing the IP of both public and private companies.

Gill, in fact, has been a step ahead of this whole drama. He became deeply familiar with Yahoo’s patent portfolio after assessing it for hedge fund manager Daniel Loeb, who was building a stake in Yahoo, and last November predicted that Yahoo would end up suing Facebook over patent infringement.

Now, Yahoo is essentially arguing that Facebook misappropriated most of the technologies that helped Facebook become what it is, as my colleague Charlie Cooper spells out in this story.

This is a monstrous problem for Facebook, especially coming at it in the weeks running up to what is expected to be the biggest Internet IPO in history. No investor wants this uncertainty hanging over Facebook–and Yahoo obviously timed this suit to put Facebook up against the wall.

While Facebook said its execs were surprised by the suit, that seems far fetched. Facebook has been hit with scores of smaller patent suits, said Gill, and it has quietly been building its own patent portfolio, fully aware of the critical importance that patents play for any successful tech company. Today, according to Gill, Facebook has as least 54 granted U.S. patents, most of which it acquired in the past two years.

“Facebook isn’t just two kids in a dorm,” said Gill. “It’s a multinational corporation with a valuation that will likely be $100 billion. And it’s been acquiring assets to build its own patent portfolio…They’re not as poorly positioned as one might expect.”

Gill says next the step is that Facebook will doubtless file a counter suit and claim that Yahoo is in fact infringing on some of Facebook’s patents. This is the only way Facebook can have any leverage in negotiating any kind of deal, and Gill says that Facebook has in fact picked up some valuable patents.

He points to a broad patent that Facebook acquired from Hewlett-Packard in 2010 that covers an “apparatus and method for communication between multiple browsers.” The claims made under this patent seem as though they could easily apply to some of Yahoo’s products. In fact, Yahoo has cited this exact patent in its own patent filings, something that patent applicants are required to do when there are similarities to existing patents.

In a counter suit, Gill points out, “It’s not like Facebook would just be guessing at what’s applicable to Yahoo.”

Read more: http://cnet.co/AbWOh9


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About patty

No shade. Just truth.