Finally putting an end to a months-long patent dispute over the technology powering the two websites, search engine giant Yahoo and social networking leader Facebook dropped their lawsuits and agreed to reach a compromise.
The agreement did not involve any exchange of money, but the two companies decided to license their patents to each other and form an alliance involving content sharing and advertising. This agreement will benefit both Yahoo and Facebook, as it develops their current partnership and also benefit the millions of web users of Yahoo and Facebook. The former currently has a lot of its content and services tied up with Facebook, and now will display ads on both the websites, and Yahoo news feeds will be available on the social network.
This skirmish was first initiated by Yahoo’s former CEO, Scott Thompson. The company filed the lawsuit in March, believing Facebook to be flourishing using Yahoo’s ideas; the lawsuit covered 12 patents of Yahoo, ranging from social network and privacy controls, to Internet advertising. This move from Yahoo drew a caustic response from many critics who saw this as a desperate attempt for a financial shakedown, and snowballed into a public relation fiasco. Thompson himself was fired two months ago. Interim CEO Ross Levinsohn sought to resolve the conflict with a new board of directors. He swiftly proceeded to strike a deal with Facebook’s COO, Sheryl Sandberg.
Nonetheless, this legal tussle exposed Facebook’s susceptibility to issues related to patent. This came while it was setting the record of biggest IPO by a web company. Arming itself with 750 patents bought from IBM for an undisclosed amount, and another 650 patents bought for $550 million from Microsoft Corp, the company retaliated with an infringement lawsuit against Yahoo.
Facebook is steadily growing, but is struggling to convince investors who are still not convinced by the company’s potential, resulting in a depreciated stock price, closing at $31.73 against the IPO price of $38. On the other hand, Yahoo is still trying to break through the financial slowdown it has been suffering from due to Facebook’s success and Google dominating the search and advertising domain. Yahoo stocks closed on Friday at $15.78.
With this agreement, Facebook hopes to utilize the new opportunity to display ads which relate to the interests of its 900 million users on other websites apart from Facebook, and Yahoo hopes to earn the revenue it had lost when marketers and companies allocated a larger spending on advertisements on social networking websites which reach out to a much larger audience.