Yahoo! also wants to make money on patents

Until recently, patent wars focused solely on the mobile services market. Apple, the most vocal patent litigator, is involved in dozens of lawsuits in countries around the world against Android device makers. Apple's list of adversaries includes Samsung, HTC, Motorola, and several other companies. Furthermore, reports of patent disputes often focus on patent trolls—companies that profit from patents on popular technologies. Patent portfolios have long been objects of sale. For example, many experts note that Google's acquisition of mobile device maker Motorola Mobility may be partly due to Motorola's strong patent portfolio.

Now, perhaps for the first time in internet business history, a patent dispute has been initiated by a major internet company. Yahoo! recently filed a lawsuit against the social network Facebook, claiming that the latter is infringing several patents owned by Yahoo!.

The details of Yahoo!'s claim are still unknown. It has only been reported that 10-20 patents are involved. Yahoo! is also demanding that Facebook begin paying the company licensing fees. The exact list of infringed patents has not been disclosed, but it is known that many of these patents are actively used in modern social services, including social networks.

These patents describe technologies for advertising placement, website personalization, and the operating principles of social networks and online messaging services.

"We strongly urge Facebook to either enter into a proper licensing agreement or we reserve the right to assert our rights through customary means," Yahoo! said in a statement. The company emphasized that it had previously entered into licensing agreements with other internet companies, but had not yet been able to reach an agreement with Facebook. Yahoo! did not disclose the names of these companies.

Yahoo!'s timing for filing its claims is particularly opportune. Facebook filed for an initial public offering (IPO) a few weeks ago. This IPO is expected to be the largest ever for an internet company. On the eve of its IPO, the social network was valued at $100 billion. The company will likely be more than willing to hush up the patent infringement scandal and agree to a deal with Yahoo!, which would require paying royalties.

Meanwhile, Yahoo! has been going through tough times lately. A failed 2008 sale to Microsoft halved its market capitalization. A management shakeup in 2008 had no effect – the company continued to lose not only its search and online advertising market share, but also its overall revenue. In September 2011, CEO Carol Bartz was fired, and rumors surfaced in the press that Yahoo! was preparing for a sale. Earlier this year, a new, determined CEO was appointed, and rumors of a Yahoo! sale began to die down. However, the company could use some fresh financial infusions. Yahoo! likely decided to cash in on Facebook's popularity, capitalizing on its upcoming IPO, and simultaneously capitalizing on its substantial patent portfolio.

Nevertheless, experts are confident that Yahoo!'s patent claims against Facebook pose a serious reputational risk, and this move will be viewed negatively by the internet community.

Another interesting fact about this story: seven years ago, in 2004, the company attempted to file patent claims against Google, also just before its IPO. Yahoo! accused Google of illegally using the pay-per-click advertising model. Google decided not to pursue the dispute and transferred several million of its shares to Yahoo!

Experts estimate Yahoo!'s patent portfolio to be one of the most powerful in the entire internet industry. The company holds over 1,100 patents and has over 2,600 patent applications pending.

This could mean that Yahoo!'s patent claims against Facebook are just the first sign of things to come, and we could see Yahoo! making patent claims against other internet companies.

"In recent years, patenting has evolved from a specific industry into an anti-competitive weapon used to block sales of a competitor's product," says M-Cam, a consulting firm specializing in patenting, commenting on the controversy.