Facebook Says Negative Outcome of Yahoo Suit May Be Material

Facebook Inc., the social-networking service that’s planning an initial public offering, said a patent dispute with Yahoo! Inc. could have a material impact on its business.

Yahoo sued Facebook on March 12, alleging that the site infringes Yahoo patents related to advertising, social networking, privacy, customization and messaging, Facebook said today in a filing. The Menlo Park, California-based company said it hasn’t yet issued a response to the lawsuit.

“This litigation is still in its early stages,” Facebook said in the filing. “If an unfavorable outcome were to occur in this litigation, the impact could be material to our business, financial condition or results of operations.”

Facebook, the world’s most popular social-networking service, is grappling with more lawsuits over intellectual property. The company, which had about 60 U.S. patents at the end of last year, is aiming to defend itself by bolstering its portfolio. Facebook acquired 750 patents from International Business Machines Corp., a person familiar with the matter said earlier this month.

Yahoo, the largest U.S. Web portal, has demanded that Facebook license its technology, saying that other companies have done so. In the complaint, Yahoo asked for an order barring Facebook from infringing 10 patents and for triple damages. At the time, Facebook said it was “disappointed” in the lawsuit and would defend itself against “these puzzling actions.”

IPO Plan

Facebook plans to raise $5 billion in its IPO, making it the biggest Internet offering on record. The company, which had almost $4 billion in revenue last year, could have a valuation of $75 billion to $100 billion, according to people with knowledge of the situation.

The company is benefiting from users spending more time on the site. The total minutes per day by all users increased 57 percent in January from the year-earlier period, Facebook said in the filing. The average number of daily minutes per member increased 14 percent.