Goliath vs. Goliath: Yahoo and Facebook Sue Over Patents

In a rare social media court case, Yahoo recently sued Facebook for 10 patent infringements. Less than two months after Facebook filed to become publicly traded, Yahoo now claims that many of the features that have allowed Facebook to accrue 850 million users, such as the News Feed, infringe on proprietary Yahoo technology. It is unclear how much money Yahoo is seeking in the lawsuit, but one thing is for certain: if this case moves forward it could be one of the biggest spectacles in the history of patent and intellectual property law. Let’s look at the salient features of the case:

The meat of the litigation revolves around patents. For decades patents have been a significant part of intellectual property law, but in recent years they have proven problematic in the development of new software and the technological innovations. Patents will now be at the heart of a cold war between two of the biggest tech companies in the world. Yahoo, which owns about 1,000 patents, is suing Facebook over 10 patent infringements ranging from Internet advertising methods and privacy controls. One of the patents is described as “optimum placement of advertisements on a webpage.” Yahoo had warned Facebook that they would sue if the social network did not agree to license the patents in question, saying that multiple other major companies had complied. Yahoo was true to their word, and called Facebook’s bluff.

Many law analysts would say that the opening legal salvo was an attempt by Yahoo to challenge Facebook’s IPO entry (which is expected to push the company’s value to $100 billion), as it is not uncommon for patent aggregators to fleece intellectual property during public offerings. But it is uncommon for this kind of litigation to be filed by large tech companies. And it is especially unusual to see such a legal fight over social media. In fact, this is the first of its kind. While intellectual property battles are par for the course in Silicon Valley and Hollywood, for the social media world this foreign territory.

Unsurprisingly, Facebook has responded by countersuing Yahoo over its own list of 10 patent infringements, which include advertising, online recommendations and photo tags. Facebook also says Yahoo’s original lawsuit caused harm to the company, though it is unclear how they will go about substantiating that accusation. Since the original lawsuit a couple months ago Facebook has acquired 750 patents from IBM, in a move that analysts say is intended to bolster the newly public company in court and prepare it for a lengthy and in-depth legal showdown that is expected to last for years. Facebook’s new patent-purchasing is a considerably new practice for them and Yahoo says this demonstrates that Facebook is on the defensive.

However, some technology writers think that Facebook has gained both the moral and legal high ground in this battle and refer to a few of the specific patents as examples of how not only will Facebook survive the patent war, it will likely come out on top. Three particularly notable bellwether patents that will be under review are:

The News Feed

The news feed will be one of the most highly contested patents. This popular, nearly ubiquitous online feature, which Facebook and other social content aggregators have used in order to generate personalized stories for social media users, could get Yahoo into a bit of trouble. Their Flickr Photostream, Recent Activity, and Groups Activity all utilize a feature known as the “Dynamic Page Generator,” which is a more generalized patent and may not be able to blanket Facebook’s more specific relationship-based feed.

Photo-and-media tagging

Photo-tagging was born in 2005 and was Facebook’s proudest child, facilitating massive user growth and inspiring similar features in all major social media tools since. Yahoo followed suite in 2009 with its own photo-tagging feature, called “People in Photos” in Flickr, which Facebook says is in violation of its patent. Media tagging is rampant on the Internet now, and some say it will be difficult for either side to prove that its owns the patent.

Headline posts

This service, developed by Terry Dunkle, uses an algorithm to weight the importance of various headlines. Facebook recently purchased this patent in order to posture themselves for an infringement claim on Yahoo’s Content Optimization and Relevance Engine. They will claim that Yahoo is ripping off the FB EdgeRank news feed, even though they didn’t even develop the service for which they own the patent.

You can also expect there to be lengthy showdowns over patents pertaining to ad targeting profiles, customization of contextual media information, ad delivery based on biographical and behavioral data, ad sorting, and control over privacy settings. Many of these patents are extremely difficult to pin down, leading many to speculate that Facebook, who has recently purchased several very specific patents, could come out on top.

In many ways, this is the end of an era. It is the end of a fairly considerable alliance between Yahoo and Facebook, who for years had integrated each other’s features into their respective services. Yahoo, in fact, increased its traffic 300% within a four month period by gaining access to Facebook’s users. But the honeymoon is over. Between these two giants, and perhaps between all media giants. Indeed, some analysts think are seeing the beginning of could be a protracted battle between media and tech companies over patents.

These patent wars are just beginning and the fallout could be more intense than merely a never-ending legal imbroglio that only affects news headlines. Major litigation over patents is accelerating. Since Yahoo first sued Facebook there have been no less than five major conflicts, including disputes between Apple and Samsung, Tivo and Motorola, and Oracle and Google. Some analysts think that the escalation of these conflicts could eventually lead to major services being shutdown, which could affect government agencies and international commerce.

One also can’t help but wonder whether or not these patent battles will continue in the social media world, which is just now becoming one of the more powerful business forces in the commercial world. Could we see similar multi-billion dollar skirmishes involving names like Twitter, Pinterest, Foursquare and others? As technology further merges with social interaction, pop culture, and the public sphere it could become difficult to disentangle the tools we’re using and the patents that hold them into place.

Yahoo, which has struggled in recent years against strong competition from Google and Facebook, just recently announced it would be laying off 14% of its workforce. It’s the sixth such layoff in four years for a company with a revenue of around $5 billion dollars. The latest layoffs were largely expected though, as the company has been struggling on the stock market and seems intent on renovating its business model. It isn’t clear whether the latest round of firings had anything to do with the patent battles or whether future firings could result from unfavorable court rulings.

The patent war between Facebook and Yahoo is expected to last for years and will likely benefit neither side in the short run. In the long run, we can probably expect to see the proceedings advance like a bitter grueling divorce settlement, in which both sides bite and claw over every last detail. In the meantime, neither company’s services will be effected. Not this time at least.


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Join the Discussion

4 comments so far.

  • [Avatar for patent litigation]
    patent litigation
    April 20, 2012 11:25 am

    This patent infringement will likely take a toll on both Facebook and Yahoo; it’s unfortunate to see the patent wars spill over into the social media sphere. Interestingly, recently I read an item stating that Twitter has vowed not to join in the patent wars. Which is intriguing, because compared to Facebook and Yahoo, Twitter is the only company that’s not quickly sliding into irrelevance. Maybe sometimes integrity does count for something, after all.

  • [Avatar for efex]
    April 14, 2012 03:07 pm

    Yahoo are big chums of AOL and Microsoft at the minute, specially in advertising, so it will be interesting to see who wins this specially if it affects business partners.

  • [Avatar for Darren]
    April 14, 2012 01:53 pm

    I am surprised that everybody seems to ignore the still ongoing lawsuit,Leader v. Facebook Case No. 2011-1366 (Fed. Cir.)! It goes to the core technology of Facebook. Their is already a judgement against Facebook for infringing 11 of 11 counts. Facebook even tried to have the patent invalidated by the USPTO and lost. The USPTO “Reaffirmed” the patent. The case now is in the hands of 3 judges of the Federal Circuit Court of Appeals after the March 5, 2012 oral arguments. When Leader Technologies wins the appeal, It will only strengthen Yahoos’ case, especially against 2 of Facebook’s patents! Also Facebook’s computer expert, states that the knowledge to be able to write and understand the Leader 761 patent, (of which Facebook was proved to be infringing!). “Q. What is one of ordinary skill in the art in computer science in this case? A. One of ordinary skill in the art, as I believe, is somebody with a bachelor of science in computing science or computer engineering or equivalent and a couple years of experience. I kind of know what students can do as soon as they graduate, and you need a couple years’ experience to mature and understand what you do and how to build products within that. Because of the nature of the 761patent, they would have to have background in networking, in distributed systems, in weapon-based platforms, and a little groupware. Doesn’t have to be extensive.”. Mark Zuckerberg lacked almost all of the requirements!!!!!
    For more information see http://www.donnaklinenow.com

  • [Avatar for Mike Zall]
    Mike Zall
    April 14, 2012 09:34 am

    It is a watershed moment of reality for those that control the web, social media and the business seedlings in Silicon Valley. They have been living in Never-Never Land under the naive assumption that patents were mere paper trophies that would not interfere with their business models and that they could blindly move forward without dealing with those that owned these trophies. Welcome to the real world!
    In all other areas of the business world, freedom to use issues are reviewed, patents enforced against competitors and litigation undertaken when necessary. The Silicon Valley world has just woken up to the fact that they need to start looking at their patent portfolios and protecting their businesses and try to avoid their neighbor’s patents or they will be eaten up. Facebook and Yahoo will eventually reach a settlement, earlier rather than latter, because each will realize that the other has additional patents to further complicate the morass and each will eventually realize that they need to move on and run their businesses rather than spend millions on lawyers and deal with the disruptive collateral damage to their businesses. Money will be paid, more than likely by Facebook to Yahoo.