Yahoo! and Facebook have agreed to call it a truce in their short-lived litigation over patent infringement. Neither company waved the white flag of surrender nor agreed that any money should change hands. Instead, the two Internet companies decided they would be better off working together and forged a strategic alliance.
For those following the story in Malaysia, Yahoo! and Facebook said their new alliance would be an advertising partnership and involve expanded distribution arrangements and a patent cross-license.
The settlement had been expected since interim Chief Executive Officer (CEO), Ross Levinsohn, who is thought to be the front-runner for the top job, took over from former CEO, Scott Thompson, who was shown the door after falsifying his resume.
At the heart of the dispute, Yahoo! had alleged the social network infringed on ten patents related to advertising. But others in Silicon Valley saw it differently. They assumed Yahoo! was taking advantage of Facebook by suing around the time it was set to make a load of cash in its initial public offering (IPO).
Yahoo! has accumulated a portfolio of more than 1,000 patents and the economically challenged company is in a mad search for revenue. Sadly, it was once the shining star of the Internet. It was Google before there was a Google.
Yahoo’s problems began in 2008, when it made a huge mistake and refused an offer from Microsoft to sell the company for RM139 billion. Since then, the company’s standing as an Internet powerhouse has waned and it has churned out CEOs. Today, there are many who wonder how it is still in business.
Facebook’s reaction to Yahoo’s attack was to countersue them for infringing on some of Facebook’s 774 patents. Having an arsenal of patents is a strategy companies use to protect themselves from patent litigation. It’s a way to stack ammunition against the enemy and protect the fort.
As part of that strategy, Facebook has been beefing up its patents’ inventory. In April, it announced it would pay Microsoft RM1.7 billion for a group of patents that originated at AOL.
On Friday, the two companies decided to end their battle and work more closely together – especially around big events like the upcoming London Olympics 2012.
The deal will give added exposure to Yahoo by allowing Facebook users to see its content. Plus, it will help Facebook build its advertising revenue, which has been a weak link –especially in mobile.
The move is seen as a win-win for both companies. Now, let’s see if the markets agree.