Yahoo Demands Facebook License Its Intellectual Property

Yahoo! Inc. asked Facebook Inc. to license technologies covered by its intellectual property and threatened to take legal action if the companies don’t reach an agreement.

“We must insist that Facebook either enter into a licensing agreement or we will be compelled to move forward unilaterally to protect our rights,” Sunnyvale, California-based Yahoo said yesterday in an e-mailed statement.

Yahoo, the largest U.S. Internet portal, is looking for ways to revive growth after losing ground to Facebook in the display-advertising market and trailing Google Inc. in Web searches. Yahoo said it has made “substantial” investments in innovation and that other companies have already agreed to license those technologies.

There are about 10 to 20 patents in question and they include technologies related to advertising and messaging, according to a person familiar with the situation, who asked not to be identified because the matter isn’t public.

Facebook, the world’s largest social-networking service, hasn’t yet been able to “fully evaluate” Yahoo’s claims, said Larry Yu, a spokesman for the Menlo Park, California-based company.

‘Difficult Position’

Patent portfolios are becoming more valuable as companies seek to build up their intellectual property, according to Ron Laurie, managing director of Palo Alto, California-based Inflexion Point Strategy LLC, which counsels companies on patent acquisitions. Facebook, which filed to go public earlier this month, is an easy target for competitors, he said.

“It’s no secret that Yahoo is in a difficult position,” Laurie said. “And when companies get in that position, they often turn to their patents.”

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. Yahoo last month reported fourth-quarter revenue of $1.17 billion, excluding sales passed on to partner sites. That fell short of analysts’ estimates of $1.19 billion.

Facebook, which has grappled with lawsuits over intellectual property in the past, faces potential threats from other large companies. Inc., the world’s largest e-commerce company, owns certain social-networking patents that predate Facebook by seven years, according to M-Cam Inc., a patent advisory service.

“As we’ve seen over the past few years in the mobile device field, patent assertion can ultimately lead to blocking the sale of a product, or, at the very least, an innovation tariff that drags down earnings,” according to a report by M-Cam. “That’s only if Amazon wants to play hardball.”

Mary Osako, a spokeswoman for Seattle-based Amazon, declined to comment.

Yahoo’s move was previously reported by the New York Times.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE