It's On: Yahoo Sues Facebook Over Patents

Yahoo (NSDQ: YHOO) has made good on its threat of last month and filed a patent infringement suit against Facebook. The lawsuit adds to the growing intellectual property car wreck that is marring Silicon Valley and suggests that Yahoo is following the path of companies like Microsoft (NSDQ: MSFT) and Kodak which made patent licensing a core part of their business strategy.

In a complaint filed in San Jose federal court, Yahoo cited ten patents related to web-based advertising and what it called “privacy patents.”

With the lawsuit, Yahoo suggests that it created the building blocks for social networking (such as messaging, news and photo features) and that Facebook came along and helped itself to those ideas. Here’s a sentence from the complaint that sums up Yahoo’s view of the case:

Facebook’s entire social network model, which allows users to create profiles for and connect with, among other things, persons and businesses, is based on Yahoo!’s patented social networking technology.

While companies like Apple (NSDQ: AAPL) and Google (NSDQ: GOOG) have been embroiled in patent lawsuits over smartphones, this is the first clash between Silicon Valley titans over social network ads.

Every major tech company has amassed a portfolio of patents that are often used for defensive purposes. In practice, this means that rivals will agree to enter cross-licensing agreements rather than sue.

In Yahoo’s case, the timing of the law suit may reflect a strategic bid to maximize publicity while Facebook is in a quiet period ahead of its reported $100 billion IPO.

Yahoo may also be trying to show exasperated investors that it has figured out new sources of revenue. In the bigger picture, though, the aggressive IP strategy may reflect weakness on Yahoo’s part. In recent years, companies have turned to their patent portfolios as a white knight of sorts to rescue them when they are getting beat up in the market place.

Facebook can respond to the suit in a number of ways such as denying that it is infringing, countering-suing with patents of its own or seeking to invalidate Yahoo’s patents. The dispute is likely to drag on for years.