SAN FRANCISCO—Yahoo Inc.'s patent suit against Facebook Inc. pits a weakened Internet pioneer against a fast-growing tech powerhouse, but some intellectual-property experts say it is Yahoo with the power position in this fight.
Yahoo's decision to file suit accusing the social-networking website of violating 10 Yahoo patents covering technologies such as online advertising, privacy controls and messaging, is widely linked to the determination of its new chief executive, Scott Thompson, to get a better return on the company's assets. Those assets include Yahoo's more than 1,000 U.S. patents, which reflect the company's investments in research and development since it was founded in 1994.
Experts in the field view the number and quality of Yahoo's patents as potent weapons against Facebook, which faces what could be a long and costly legal fight as it prepares for its long-awaited public offering. Facebook has relatively few patents of its own to use in countersuits, leaving it potentially in need of assistance from other patent holders to gain leverage in the battle.
At the same time, however, some industry executives view Yahoo's decision to take its complaint to court as a sign of weakness and a break with Internet-industry tradition.
Yahoo and Facebook representatives declined to comment for this article.
According to patent-analysis firm Innography, eight of the 10 patents that are part of Yahoo lawsuit rank in the top 20% of those in the firm's database in terms of strength. That's based on the large number of other, highly rated patents that cite Yahoo's intellectual property in their filings, the firm says.
The Institute of Electrical and Electronics Engineers' "Patent Power Scorecard" published last year ranked Yahoo first in terms of communication and Internet services, ahead of Google Inc., AT&T Inc. and others.
Other factors in gauging the strength of a patent portfolio include the patent owner's legal track record, history of innovation and endurance. On that basis, Yahoo's patent portfolio is "one of the strongest I've ever seen," said Joshua Walker, chief executive of patent data tracker Lex Machina Inc., which counts Yahoo as a customer but not Facebook.
Yahoo's suit cites patents filed between 1997 and 2007 that touch on ways Internet users can interact with ads, customize sites and contact friends. Its 19-page complaint against Facebook, filed Monday in U.S. District Court in San Jose, Calif., points to specific Facebook features Yahoo alleges were copied from its own innovations.
For example, Yahoo alleges that in 2008, before Facebook started using Yahoo's patented technology, it was "considered one of the worst-performing Internet sites for advertising."
Yahoo also cites Facebook's stream of user posts, dubbed the News Feed. That feature stems from Facebook's infringement of Yahoo's "customization" patents, Yahoo alleges in the suit. Facebook's privacy controls, and even the particular format of many of its online ads also tread on Yahoo patents, Yahoo contends.
Facebook didn't respond Monday to specific allegations in Yahoo's complaint. But the company said "we will defend ourselves vigorously against these puzzling actions."
Companies accused of patent infringement frequently countersue, seeking to pressure attackers into settlements. But Facebook's arsenal of U.S. patents is much smaller, totaling just 56 through last year.
David Mixon, a Huntsville, Ala.-based partner of law firm Bradley Arant Boult Cummings, said Facebook could purchase or license patents for such a counterattack. He cited Google's recent purchase of Motorola Mobility Holdings Inc., a move made in large part to bolster its patent position against Apple Inc. in the mobile phone market.
One potential ally could be Microsoft Corp., which paid $240 million in 2007 for what at the time was a 1.6% stake in Facebook. The companies' tie-ups have Microsoft's technology placed on Facebook sites, and Facebook features placed within Microsoft's search engine.
But Microsoft also has close ties to Yahoo, including a patent cross-licensing agreement, according to public filings. A Microsoft spokesman declined comment.
Companies often want to resolve nagging legal issues before an IPO, but there is no guarantee that Facebook will be willing or able to strike a settlement with Yahoo before the offering. And patent trials and related proceedings can drag on for years.
For example, Oracle Corp. sued Google over patents in August 2010. That case has been winding through a California court ever since, with a trial now scheduled to begin next month and last some eight weeks, according to court documents.
There are obvious financial incentives for filing the suit for Yahoo, which reported a little more than $2.5 billion in cash and equivalents on hand as of December. Facebook has said it had $3.9 billion in cash at the same point.
Yahoo, though it had traditionally used its patents to defend itself in court, faces pressure from an angry shareholder base and losses in advertising revenue to Facebook and other rivals.
Yet the company also faces criticism for breaking an unwritten rule among Internet firms to avoid suing each other over patents, which could tend to stifle innovation. Scott Kessler, an S&P Capital IQ analyst, predicted in a research note that the suit could bring Yahoo "significant related financial benefits as well as reputational harm."
Critics of Yahoo's move include Eric Hippeau, a former board member who had been with Yahoo from 1996 until resigning last year. "Pathetic and heartbreaking last stand for Yahoo," he wrote in a Twitter post. "It's all over. I loved you very much."
Added venture capitalist Fred Wilson, in a blog post: "They are dead to me."
Write to John Letzing at john.letzing@dowjones.com
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