Patents in the online world can be fuzzy, with companies paying others to use patented techniques that have since become the norm in their field. But they do still exist, and Facebook is using two patents currently owned by Yahoo! that might become relevant in the coming months. Yahoo! will likely try to strike a deal with Facebook before the company goes public, so expect to see Facebook pay big to get the right to use these patents.
Yahoo! has seen itself passed over in recent years by some of the giants, including Google and Microsoft, and Facebook is poised to win big as it starts selling stock in the company in the near future. As Yahoo! struggles to keep up, the company may turn to legal issues to take a chunk out of Facebook before the upcoming initial public offering.
What Exactly is Facebook Using that Yahoo! Owns?
Two major patents are in question, and although one is not at the heart of Facebook’s business, it may expand into this area in the future and will want to secure the right to use both patents to protect itself in the future.
First, Yahoo! patented a social media technology that allows users to send messages to large numbers of connected individuals, which is at the heart of Facebook’s business model. Although Yahoo! has not been very bold in the past with calling Facebook out on this one, now is the time to strike. Before Facebook filed its prospectus in preparation for the IPO, nobody really knew how much the company is worth. Now we see that its value is staggering, and Yahoo! can definitely benefit from contesting the patent use.
The second patent is related to search, which is not the core of what Facebook does, but could be a bigger player as the company continues to expand after the IPO. In addition to the use of the patent in general search technology, the current Facebook ad system does use technology patented by Yahoo! to drive the targeted advertising techniques that help Facebook sell its ads.
How Likely is Yahoo! to Defend These Patents?
In the past, Yahoo! has not been particularly active in defending itself against illegal use of its patents. However, as recently as October 2011, Yahoo! executives have made public statements mentioning its patents as valuable assets that could prove to be profitable.
In addition, given that Yahoo! is not as profitable as it would like to be, this could be a great time to strike. Facebook is obviously a valuable company that has a lot to lose, so Yahoo! can get a significant benefit from disputing the illegal patent use.
We can also look to the example of the Google IPO in 2004 and note that Yahoo! did go after Google for the use of patents in its technology behind the AdSense and AdWords programs. Many critics suggested that Yahoo! did not get enough money out of that deal, and with Facebook using the same sort of technology for its advertising, Yahoo! may try to capitalize more dramatically this time around.
What to Watch For
In the coming weeks, look for Yahoo! to approach Facebook with specific accusations of intellectual property infringement. We are likely to see a deal that will be a significant payout for Yahoo! and that will decrease the value of Facebook prior to its IPO. This probably won’t destroy Facebook, but it will put a lid on some of the excitement surrounding the IPO.