Yahoo draws battle lines with lawsuit against Facebook

Is new Yahoo CEO Scott Thompson trying to show us what he’s capable of? The former Paypal exec only started his job in January, and he’s already taken the ‘puzzling’ (Facebook’s words, not ours) decision to sue Facebook for infringements of 10 of its patents, including ‘systems and methods for advertising on the web’ and its social networking technology. In fact, Yahoo reckons ‘Facebook’s entire social model... is based on Yahoo’s patented social networking technology’. It’s easy to understand Facebook’s confusion - after all, that’s a bit like Honda suing Ford for using wheels on its cars. But some suspect there’s an ulterior motive...

Interestingly, Facebook’s just about to launch an IPO, exactly the same stage that Google was at in 2004 when Yahoo - you guessed it - hit it with an enormous lawsuit over patent infringement. Coincidental, non? Back then, Google eventually resolved the matter by issuing 2.7 million shares to placate Yahoo. So as BGC Partners analyst Colin Gillis told the BBC this morning: ‘It’s reasonable that Yahoo would want to try this tactic again as it worked in the past.’

Will it derail Facebook’s IPO? Doubtful. More likely, this is an attempt by Yahoo to get back on the front foot after the ousting of its then CEO Carol Bartz in September. After all, Facebook is about to have an awful lot of cash to play with, and Yahoo’s best asset is probably its voluminous patent portfolio. Clark S. Stone, a patent expert at US law firm Haynes and Boone, pointed out to CNet that ‘you’ve got to assume that unless it’s some kind of grudge match with bad blood running, then there typically is some sort of business strategy behind this.’

Nevertheless, it’s an unusual move by Yahoo. While battles over patents have become increasingly common between smartphone manufacturers, social networks have managed to hold off. Although if Yahoo manages to win anything (and it seems to think it has a fairly strong case), it could open the flood gates: until now, it’s been difficult to ascertain whether computer code is patent-able.

Then again, this may be simply a case of Yahoo marking its territory. The company has had a tough year, with the departure of Bartz and several board members shortly afterwards, as well as the resignation of co-founder Jerry Yang in January, so this could be Thompson trying to reassert the company’s authority. Not quite what we had in mind when he promised to take Yahoo ‘back to innovation... and disruptive concepts’, though. Let the battle commence...

This article was first published on managementtoday.co.uk