Facebook Slaps Yahoo With Countersuit, Patent Wars Continue

In retaliation to Yahoo! Inc. filing a lawsuit for infringing 10-20 patents in March, social networking giant Facebook Inc. filed a countersuit alleging Yahoo is guilty of patent infringement as well.

Facebook argues that Yahoo infringed their patents covering display advertising, content personalization and photo sharing which accounted for almost 80% or $4 billion of Yahoo!’s revenue last year.

“From the outset, we said we would defend ourselves vigorously against Yahoo’s lawsuit, and today we filed our answer as well as counter-claims against Yahoo for infringing 10 of Facebook’s patents,” said Ted Ullyot, Facebook’s general counsel in an emailed statement.  “While we are asserting patent claims of our own, we do so in response to Yahoo’s short-sighted decision to attack one of its partners and prioritize litigation over innovation.”

Facebook is asking the court to dismiss Yahoo’s case, rendering it invalid, and to fine them for legal fees.  Of course, you can’t expect Yahoo to back down– they started this mess.

“We have only just received Facebook’s answer and counterclaims, but on their face we believe they are without merit and nothing more than a cynical attempt to distract from the weakness of its defense,” Yahoo said in a statement.

Of the patents included in Facebook’s filing, only two of them were invented by their employees, while the rest were purchased.

Patent infringement lawsuits are common in Silicon Valley but it’s just a bit odd for a company to sue another company that’s driven traffic to their site.  Yahoo is integrated in Facebook’s news activity feeds and this generated a lot of traffic for Yahoo since its launch.

“This was the action of a desperate man,” said Lou Kerner, the head of the Social Internet Fund, an investment firm. “Facebook has a significant and valuable patent portfolio. They were very savvy about getting as many patents as they could.”

Others are dismayed by the fact that Yahoo, who is considered one of the contributors in the success of the internet, turned into a patent troll.

“Yahoo used to be an iconic company that contributed to key building blocks of the Internet as we know it,” said Jeff Clavier, a managing partner at SoftTech VC, a Silicon Valley investment firm. “A decade later, and after years of management and identity crisis, it’s turning into a patent troll. That is so sad.”

Aside from becoming a patent troll, Yahoo is faced with the tough decision of cutting some 2,000 workers which, sadly, may begin sometime today.  All of Yahoo’s divisions will be affected by the layoff but the greatest impact would be directed to the product division, led by Blake Irving.  The worst part is, the massive layoff will just be the beginning, as Yahoo looks into cutting several expenses.  After the layoff, Yahoo is said to be launching a new organization next week.