Yahoo's Facebook Lawsuit - an IPO Gimmick? - The UpStream

Yahoo's Facebook Lawsuit - an IPO Gimmick?

posted Saturday Mar 17, 2012 by Scott Ertz

Yahoo's Facebook Lawsuit - an IPO Gimmick?

Yahoo's management made an interesting and unexpected move this week, suing Facebook for patent infringement. There are 10 patents in question here, some of which were filed and issued long ago, before anyone really knew what the Internet was or where it was headed. The patents are vague and mostly nondescript, leaving open a lot of room for failure on Yahoo's part.

There are a number of issues that this filing has raised. First, there is the major problem of software patent law. There are a lot of thoughts on what needs to happen, and most of those thoughts seem to come from a place of misunderstanding of how software or patents work. Patents, for software or hardware, are only allowed to be approved for implementation not concept. For instance, one of the patents in question, "Control for enabling a user to preview display of selected content based on another user's authorization level," is not focused on implementation, but instead on concept. This patent does not bind to the law for patents, and therefore has no chance of standing up in a court case like this.

The solution here is to get the US Patent Office involved and get them to stop approving unlawful patents. That is not an option with patents already in question, so that leads to the second issue. With the ability of the court to nullify the patents in question here, why would Yahoo choose to file against Facebook after theoretically infringing for years? Hit the break to find out.

Facebook is currently in its quiet period before its Initial Public Offering. It currently cannot publicize itself, or really talk much at all, for fear of the SEC rejecting its application. Competitors, on the other hand, can talk all they want; that is exactly what is happening here.

Yahoo knows it has no legal basis to stand on and that its patents cannot hold up in court. Because of that, they know the technology is also unlicensable, and therefore has zero value to the company. With Facebook becoming the technology company that everyone knows, Yahoo is afraid a very successful IPO will hurt the value of its own company. The best way they have to prevent that using only the tools at their disposal currently, is to drag Facebook through a very public patent infringement case. Their hopes, in my opinion, are that investors will know there is a possibility of Facebook having to pay a licensing fee to Yahoo for every registered user for every patent they might be infringing, and they will be less likely to buy Facebook stock.

There are a lot of risks to a move like this. Yahoo could, of course, lose the rights to all of the patents in question, but they might also be seen by investors as careless with money and therefore lose value on their stock, the very thing they are working to prevent with the case. In my opinion, there is no chance this case can stand, and Yahoo will lose its patent holdings, but they only need to survive summary judgement or prevent the case from seeing a judge until the SEC approves Facebook's IPO and stock starts trading to possibly attain their goal.

What do you think: will Yahoo be able to affect Facebook's initial stock price or will they lose their own value? Let us know in the comments section.

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