Will Yahoo and Facebook end their battle?

If common ground is found, a strategic relationship could benefit both companies.

By Benzinga Jun 4, 2012 4:27PM
By Louis Bedigian, Benzinga Staff Writer

Yahoo's (YHOO) new CEO may end his company's lawsuit against Facebook (FB), closing the book on one of the more controversial moves made by his predecessor.


Yahoo sued Facebook in March, claiming that the social network was infringing on its patents related to advertising, privacy controls and other technologies. Yahoo was widely criticized for the suit, particularly because it echoed a patent lawsuit it filed against Google (GOOG) before the search giant went public in 2004.


Now, Yahoo's patent conflict with Facebook could soon come to an end.


That's according to AllThingsD, whose sources say that the two companies have been "hammering out the outlines of a deal over the last several days to end their contentious patent infringement litigation."


Yahoo's battle with Facebook began under former CEO Scott Thompson. At that time, Trip Chowdhry, the managing director of equity research at Global Equities Research, told Benzinga that he supported Yahoo's decision to sue.


"Think about it – Yahoo is a pioneer of intellect," Chowdhry said. "These people have defined the industry, and the latecomers like Facebook come and copy 10 years of innovation at Yahoo and take a free ride. It's just not right."


But Thompson resigned after errors in his resume surfaced, and interim CEO Ross Levinsohn appears open to a resolution. AllThingsD is reporting that a settlement could come within weeks. "Advanced negotiations will put aside the lawsuits and counterclaims between the one-time close partners and return them back to what could be an even closer relationship," wrote Kara Swisher of AllThingsD.


That's an interesting turn of events, to say the least. One would imagine that a patent battle of this magnitude could tear the two companies apart forever. But if Yahoo and Facebook can put aside their differences and focus on the greater good, things might improve for both firms. With Facebook looking to strengthen its presence in photo distribution, and with Yahoo attempting to make a comeback in search (a comeback that could include its new browser plug-in, Yahoo Axis), the two firms may be smart to form a new alliance.


According to AllThingsD, the "key terms" being discussed by Facebook and Yahoo executives include "massive cross-licensing of patents between the Internet giant and the social networking kingpin and an even deeper integration of Facebook into Yahoo and vice versa, which has been a key element of improved engagement of late on Yahoo."


But while Facebook didn't mind forking over $550 million for a slew of patents -- which it technically purchased from AOL (AOL) through Microsoft (MSFT), who purchased the patents earlier that month -- AllThingD's sources claim that the social networking giant is "not likely" to pay Yahoo a pretty penny for its patents.


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