Yahoo files patent lawsuit against Facebook

Suit comes at a time Facebook is teeing up for its IPO; Facebook calls suit 'puzzling'

Yahoo, once a leading Internet giant on the Internet, filed suit Monday against the new titan of the Web - Facebook, alleging the Internet pioneer had invented and owned many essential services that underly social networks. 

Yahoo filed suit against Facebook for 10 patent infringements that if upheld would hold Yahoo as the inventor and owner of the essential services that make up a social networking website, such as messaging, news feed generation, social commenting, advertising display, preventing click fraud and privacy controls. 

Facebook responded, in an email to VatorNews, that it's "disappointed" and that it will "defend itself vigorously against these puzzling actions."

The suit comes at a time that Yahoo's having some problems of its own. Shares of Yahoo have been lackluster for a long time. Shares of Yahoo have done nothing since trading at a low of under $10 back in late 2008. Today, shares trade at $14.49.  Additionally, Yahoo, which has 14,000 employees, is rumored to be on the brink of widescale layoffs.

Meanwhile, the lawsuit could also add dampen some enthusiasm for Faceboo's imminent IPO. 

The suit may highlight some of the high points of Facebook’s vulnerabilities insofar as patents are concerned.  While Yahoo owns over 1,000 patents, by the end of 2011, only 56 had been issued to Facebook, a trend that might paint a picture of a company light on innovation and heavy on “borrowing” from existing companies and services to promote its own.

Initial reaction to the suit throughout the blogosphere included puzzlement that such a strong partner of Facebook’s would resort to a suit. 

But many concede that the ways in which Facebook has surpassed Yahoo as the most trafficked site on the Internet place Yahoo in the position of fighting back with the last weapon at its disposal – namely, litigation.  Given that Yahoo is on the verge of layoffs, many may view the lawsuit as “sour grapes” and an attempt to pull Yahoo back from the brink of oblivion. 

Indeed, Yahoo has seen its market share for display advertisements erode because of Facebook. Yahoo has long dominated the display ad market on the Internet, but in 2011 it was surpassed by the upstart Facebook, whose display ad numbers jumped from 12.2% in 2010 to 17.7% in 2011, placing Yahoo in the No. 2 position for overall Internet revenue from display ads.

Both Facebook and Yahoo were not immediately available to comment, after we sent email requests. 

Parts of Facebook statement regarding the suit, couresy All Facebook. 

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. Once again, we learned of Yahoo!’s decision simultaneously with the media. We will defend ourselves vigorously against these puzzling actions. 

The two companies had enjoyed a reasonably solid partnership over the course of the last several years, as Facebook allowed Yahoo! to integrate Facebook’s social plug-ins into Yahoo!’s site which brought the portal a lot of traffic and illustrated the ways the two giants were working together.

In the course of the complaint, Yahoo! quotes Facebook CEO Mark Zuckerberg as stating that Facebook’s services are not novel and that if “we didn’t do this someone else would have.”

The complaint argues that Facebook’s infringement is not something that can be covered by a royalty alone because Facebook’s use of Yahoo!’s patented technologies has increased Facebook’s popularity and market share because it does not have to recover the time and the costs involved in the development of the technology.

Yahoo is seeking that Facebook be kept from further infringement on Yahoo’s patents, along with damages, with pre- and post-judgment interest on the damages, and the coverage of all court costs.