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Summary:

When Yahoo (NSDQ: YHOO) filed a patent suit against Facebook this week, it became as popular as Rush Limbaugh at a Planned Parenthood gather…

Yahoo
photo: Corbis

When Yahoo (NSDQ: YHOO) filed a patent suit against Facebook this week, it became as popular as Rush Limbaugh at a Planned Parenthood gathering. But many Yahoo investors will tolerate Silicon Valley’s scorn if the patent gambit actually works. Will it?

While a thousand insults are raining down on Yahoo right now, there are only a few ways this case could turn out. Here they are, including the (unofficial and speculative) odds for each outcome

Yahoo Wins: A Court Decision or Forced Licensing Agreement (1 in 5 odds)

Yahoo’s dream scenario is to get an injunction that orders Facebook to stop using its patents. This would force the social network to license the patents at an extortionate rate to prevent going dark.

While CEO Scott Thompson may have visions of the $612 million BlackBerry settlement dancing in his head, he’ll have a hard time getting a similar deal from Facebook. That’s because it became much harder for patent holders to obtain injunctions after the Supreme Court changed the law in a 2006 case called eBay v. MercExchange.

The second best outcome for Yahoo is a good old fashioned damages order that forces Facebook to pay millions for infringing the patents. While this is more likely than the first outcome, it is hard to imagine any eye-popping verdict. The case is taking place in a tech-savvy California court, not the troll paradise of East Texas where rural juries love sticking it to northern tech companies.

Yahoo Loses: Facebook KO’s the Patents or Wins a Counter Claim (3 in 10)

Facebook is no struggling start-up. It has an army of lawyers and is not shy about using them (see Winklevii or Ceglia, Paul). To fight back, it can tap its own patent portfolio or purchase third party patents in order to counter-sue Yahoo. Silicon Valley is awash in absurd patents so this would not be difficult.

Many of the Yahoo patents seem abstract, anticipated or obvious so Facebook will likely ask the court and the Patent Office to declare them invalid. Tech sites are already holding up prior art and, damningly, the Yahoo engineer who “invented” some of the patents has disavowed their legitimacy. If Facebook needs more help, it could turn to a firm like Article One Partners which pays bounties to people who find documents that prove an invention is not really new.

But killing a patent is no walk in the park. Yahoo is asserting ten separate patents, each with multiple claims, so it has many bullets. To get the upper hand, Facebook will have to knock out as many claims as possible while also piercing Yahoo with patents of its own until the Sunnyvale company capitulates.

A Draw: Yahoo and Facebook enter a Cross-Licensing Agreement (even)

If Facebook can find patents of its own to assert, the path is clear for Yahoo to come to its senses (recall that it’s now claiming to have invented the social network). A discreet cross-licensing deal would allow the company to avoid calamitous legal costs (senior patent lawyers bill around $1000 an hour) and hire engineers, writers and marketers instead.

One potential obstacle to a cross-licensing deal, though, is finding a way for Thompson to save face. Right now, the CEO is on a limb after pulling a macho move to show investors that he will do something — anything — to push the company in a new direction. Yahoo’s embrace of the patent path has already produced unprecedented cries of rage and betrayal from the tech community so Thompson may feel hard-pressed to double-down and avoid anything that looks like compromise. Plus, experts say success could allow the company to make a living as a full-time patent troll.

The Game Clock

While there’s an outside chance Facebook will get skittish and settle prior to its IPO, the company’s statements so far suggest the opposite. This means a court case that could last years or even up to a decade if appeals are involved. Facebook will probably still be around by then. As for Yahoo, who knows?

  1. No mention of Leader Technologies? They have already won on infringement claims against Facebook, and in addition, met Facebook head on at the US Federal Court of Appeals on March 5, 2012. 

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    1. Newark officials must hand over a list of emails
      related to the $100 million donation .

      750 million dollars isnt cool
      Mark, you know what ’ cool? adding five attorneys to Paul Ceglia’s legal team.
      that cool .

      zucerberg you stole from Michael McKibben who runs Leader
      Technologies

      And you stole the idea facebook

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  2. This whole case is just amazing to me as a lot of these patents can relate to almost every site on the web

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    1.  This is what happens when someone is the first to invent in a key area of technology.  They get a broad patent and that protects them in some measure from all the marketing hucksters who try to profit.  Every inventor faces this problem.  There are literally hundreds of asset thieves for each inventor.

      Ronald J. Riley, 

      Affiliations:
      President – http://www.PIAUSA.org – RJR at PIAUSA.org
      Executive Director – http://www.InventorEd.org – RJR at InvEd.org
      Senior Fellow – http://www.PatentPolicy.org
      President – Alliance for American Innovation
      Caretaker of Intellectual Property Creators on behalf of deceased founder Paul Heckel
      Michigan * Washington, DC
      Direct 810-597-0194 * 202-318-1595 – 9 am to 8 pm EST.

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  3.  Jeff – you used a few “odds”, while admittedly speculative and “unofficial” (whatever that means), to make your article seem smarter and more interesting. In reality, you only managed to expose your ignorance in this area.  Let’s inject a few facts:

    “Yahoo Wins: A Court Decision or Forced Licensing Agreement (1 in 5 odds)”

    Actual patent-owner win rates in the North District of California — 1 in 3.  (See below for sources)

    “Yahoo Loses: Facebook KO’s the Patents or Wins a Counter Claim (3 in 10)”

    This doesn’t make any sense, and is logically inconsistent with your “Yahoo Wins” scenario. Yahoo only has three options: win, lose or compromise.  You put “win” at 1 in 5, but “lose” at 3 in 10?  In any event, the only “lose” scenario Facebook really cares about is any scenario that avoids liability to Yahoo.

    If patent-owner win rates in ND Cal are 1 in 3, then what do you think defendant win rates are? Just take a guess . . .

    “A Draw: Yahoo and Facebook enter a Cross-Licensing Agreement (even)”

    Unlikely.  By all analyst accounts, Yahoo is in this for the cash. Not that it makes it true, but every has said so …  A cross-license gets them very little by comparison, due to the mediocrity of their own economic activity compared to Facebook.

    But your truly ignorant statement is this one: “The case is taking place in a tech-savvy California court, not the troll paradise of East Texas where rural juries love sticking it to northern tech companies.”

    I thoroughly debunked this particular myth last year (reference, for example, my journal article mentioned below).  But your statement goes beyond the typical “plaintiff friendly” mantra, and offensively, inaccurately, and inappropriately calls out the good folks of East Texas for being stupid rednecks with an inherent bias toward “northerners”.  

    First of all, several East Texas juries have, quite recently, invalidated patents where they believed it to be appropriate.  Second of all, if you bothered to check your facts, you would have realized that your “tech-savvy California” juries actually side with patent owners more often than East Texas juries.  To be precise, patent owners win at trial 71% of the time in Northern California, but only 66% of the time in East Texas.

    For the 71% vs 66% statistic, and the overall 1 in 3 ND Cal win rate, I refer you to my article in  Issue 46 of IAM Magazine  (“Sued in East Texas – should you stay or should you go?” available here: http://www.iam-magazine.com/issues/Articles.aspx?g=d88c54cc-ab7c-4176-8ea6-6976c2701a26)

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    1. Eastern Texas courts are tech and law savvy and the reason big corporations and their propagandists hate the court is that it does not allow big companies to use delaying tactics which lead to small companies going bankrupt.  It is so much easier to steal inventions when big companies can caused endless delays, often a decade or more.

      One last thing, Attacks of the court and venue has caused many inventors and their small companies to move to Texas.  I suspect that this area will become the next Silicon Valley. 

      Ronald J. Riley, 

      Affiliations:
      President – http://www.PIAUSA.org – RJR at PIAUSA.org
      Executive Director – http://www.InventorEd.org – RJR at InvEd.org
      Senior Fellow – http://www.PatentPolicy.org
      President – Alliance for American Innovation
      Caretaker of Intellectual Property Creators on behalf of deceased founder Paul Heckel
      Michigan * Washington, DC
      Direct 810-597-0194 * 202-318-1595 – 9 am to 8 pm EST.

      Share
  4. TrailingArbutus Thursday, March 15, 2012

    And WHAT exactly, will Facebook use to fight Yahoo to a draw???? A sponge? You sir, have no clue how patent enforcement works and what the risks are for patent holders and investors.

    How about a story, instead, about the grand $100 billion theft of intellectual property that the investment bankers are about to try and foist off on US investors in the next few months? Now THAT would be good journalism.

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    1. It is PAID content by PAID PR hacks, propaganda artists.  Yahoo is the pioneer and Facebook the marketing huckster.

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  5. PatentlyObvious Friday, March 16, 2012

    The patents Yahoo! is asserting against Facebook underwent extensive claim amendments AFTER Facebook was incorporated in 2004. In other words, 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.

    However, Facebook faces a Catch-22. Should the company elect to prove that they “invented” what Yahoo! amended into their patents, they may prevail, but the proof of inventorship would then be ammunition to invalidate their own too-late-applied-for portfolio (you only have a year of commercial use before you’re disqualified from seeking or gaining patent protection).

    Read a full report here: http://www.m-cam.com/patently-obvious/defriending-facebook-intellectual-property-analysis-yahoo-inc-v-facebook-inc

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