Facebook Responds to Yahoo Patent Lawsuit With Counterclaims

Facebook Inc. (FB), operator of the world’s biggest social-networking site, accused Yahoo! Inc. (YHOO) of infringing 10 patents through its home page and Flickr photo- sharing service and in ads displayed throughout its site.

Facebook, which was sued by Yahoo for patent infringement last month, made the counterclaims yesterday in a federal court filing in San Francisco. Facebook denied stealing Yahoo’s technology, saying its rival’s patents are either invalid or its claims legally barred and the lawsuit should be dismissed.

“While we are asserting patent claims of our own, we do so in response to Yahoo’s shortsighted decision to attack one of its partners and prioritize litigation over innovation,” Ted Ullyot, Facebook’s general counsel, said in an e-mail.

Yahoo, owner of the most popular U.S. Internet portal, has been struggling to keep pace with Google Inc. (GOOG) and Facebook, which have lured away users and ad dollars. Facebook filed for an initial public offering in February that may value the business at $75 billion to $100 billion, people familiar with matter have said.

David McCombs, an intellectual property lawyer at Haynes & Boone LLP in Dallas, said the countersuit by Facebook means “the gloves are off, and they will fight it out.”

Photographer: Peter DaSilva/EPA/Landov

A Facebook art pieces in Menlo Park, California. Close

A Facebook art pieces in Menlo Park, California.

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Photographer: Peter DaSilva/EPA/Landov

A Facebook art pieces in Menlo Park, California.

‘Picks a Fight’

“If someone picks a fight with you, then you certainly would respond in kind, typically,” he said yesterday in a phone interview. “You would expect Facebook to have intellectual property assets that would be applicable to anyone that’s operating in that space.”

Yahoo, based in Sunnyvale, California, alleged in its lawsuit that Facebook infringes patents covering functions critical to websites, including Internet advertising, information sharing and privacy. It’s seeking an order barring Facebook from infringing 10 patents and for triple damages.

The lawsuit followed Yahoo’s statements in February that Menlo Park, California-based Facebook, like other Web companies, must license its technology.

“We have only just received Facebook’s answer and counterclaims, but on their face we believe they are without merit and nothing more than a cynical attempt to distract from the weakness of its defense,” Yahoo said in an e-mailed statement. “We have proposed that Facebook join us in discussions to resolve the matter, but our overtures have been rejected. As a result, we are prepared to continue to seek redress through the courts.”

Facebook’s Counterclaims

In its counterclaims, Facebook says its patents are infringed directly by Yahoo’s home page and Flickr and through advertisements displayed throughout Yahoo’s site on finance, sports, games and shopping services.

Facebook patents at issue in the counterclaims include those related to technologies for generating a feed of stories personalized for social network users, posting headlines and distributing user profiles over a network. The company is seeking court orders declaring that it doesn’t infringe Yahoo patents, blocking Yahoo from using its patents and awarding it unspecified damages from Yahoo.

Yahoo lost its No. 1 spot to Facebook last year in the U.S. market for display advertising, which includes video and graphically based marketing messages, according to EMarketer Inc. In January, Yahoo reported fourth-quarter revenue of $1.17 billion, excluding sales passed on to partner sites.

Facebook, which has more than 845 million users, is seeking $5 billion in what could be the largest Internet IPO on record. Facebook’s implied valued rose 8.9 percent to $102.8 billion March 30 in what was expected to be the last auction of its stock on SharesPost Inc.’s exchange before the IPO.

The case is Yahoo! Inc. (YHOO) v. Facebook, 12-cv-01212, U.S. District Court, Northern District of California (San Jose).

To contact the reporter on this story: Karen Gullo in San Francisco at kgullo@bloomberg.net

To contact the editor responsible for this story: Andrew Dunn at adunn8@bloomberg.net

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