Yahoo Is Risking Its Reputation With Facebook Lawsuit

Yahoo has endured its set of trials in the last several years, and it is understandably skittish about a lot of things.

In just the last few months, it has replaced its CEO, lost its former CEO and co-founder, lost its board chairman and replaced three other board members. The company’s overall value is slipping, and it is facing the prospect of major layoffs.

Lawsuit triggered

So, as other companies have done with varying results in the past, it is looking around for some kind of relief. One option is to see if anybody’s taking advantage of you behind your back.

It made one such important decision on 12 March, when it filed a lawsuit against social networking giant Facebook over 10 patents that include methods and systems for advertising on the Web, the first major legal battle among big technology companies in social media. No dollar amounts were mentioned.

Yahoo had threatened this move back on 28 February. It now has pulled the trigger. The Sunnyvale, Calif.-based Web services company said it is seeking licensing fees from Facebook over its patents and that other companies have already agreed to such licensing deals.

In the lawsuit, Yahoo says Facebook was considered “one of the worst performing sites for advertising” prior to adapting Yahoo’s ideas. “Mr. Mark Zuckerberg, Facebook’s founder and CEO, has conceded that the design of Facebook is not novel and is based on the ideas of others,” the lawsuit said.

In a statement to Reuters, Yahoo said it is confident it will prevail. “Unfortunately, the matter with Facebook remains unresolved and we are compelled to seek redress in federal court.”

Legal Move Comes Six Weeks After Facebook IPO News

Yahoo’s announcement comes in the wake of Facebook’s plans for an initial public offering that could value the company at about $100 billion. Hmmm.

Facebook spokesman Jonathan Thaw told Reuters that his company learned of the lawsuit through the media. “We’re disappointed that Yahoo, a longtime business partner of Facebook and a company that has substantially benefited from its association with Facebook, has decided to resort to litigation,” he said in a statement.

Yahoo has retained the same law firm, Quinn Emanuel Urquhart & Sullivan, used by Google and other manufacturers in several Android-related smartphone patent cases.

Curiously, Quinn Emanuel also has social gaming service Zynga as a client. Zynga is a close partner of Facebook, bringing in about 12 percent of Facebook’s revenue, according to Facebook’s IPO statement from February.

The lawsuit, filed in federal court in San Jose, is the latest legal event in a major influx of patent litigation that has hit the smartphone and tablet sectors and high-visibility companies such as Apple, Microsoft and Motorola Mobility.

Yahoo Venturing Into Dangerous Image Waters

Yahoo’s lawsuit may or may not be of merit. But no matter what ultimately happens, Yahoo risks incurring the wrath of IT folks around the world, like the SCO Group of 10 years ago.

You might remember SCO (the Santa Cruz Organization, formerly Caldera), a Unix and Linux licensing and maintenance company based in Utah that sued just about every major IT company on the planet for years until it finally went under a couple of years ago. IBM, Novell and Sun Microsystems were just three of the longtime SCO targets. SCO ultimately lost all those patent fights, at the cost of millions of dollars.

Just the mention of SCO Group’s name tends to bring up the term “patent troll” among those familiar with its many lawsuits. There was a time when people actually thought SCO Group was in the business of patent litigation, and only that.

The timing of this lawsuit is very curious—especially since Facebook will be flush with cash in the next couple of months.

Yahoo’s move at this time looks opportunistic. This is a very aware organization that should know that perception, right or wrong, is reality. This litigation is going to elicit a lot of “ah-hahs,” especially in the social media channels, and will not help the company’s already battered image in the long run.

However, it could make Yahoo some money, which apparently it needs more than good will.