On the eve of Facebook’s heralded IPO, Yahoo is trying to shake down Facebook, demanding payment for infringement of 10-20 of its patents. Yahoo and Facebook had been buddy-buddy until Yahoo made its move, but this will at least shake things up.
Yahoo, after all, is largely irrelevant to most internet users. Aside from sending email to people who haven’t yet switched to Gmail and the occasional news article, I have not used Yahoo in years. Yahoo knows that if it can’t do an about-face now, it is on the decline. It’s only a matter of time until it is absorbed by company for essentially the value of its intellectual property (i.e., RIM, Kodak, Nokia). Seeking to reap a bid-pay day, a la the pre-IPO settlement Yahoo made with Google, whereby Google gave Yahoo 2.7 million shares in a patent settlement before the search giant’s 2004 IPO. Investors do not want the uncertainty of litigation when they buy chunks of a $100 billion company. If the prospective suit has merit – and I have no idea whether it does – Facebook will probably settle. It can afford it, and historically it has been conservative with patents, knowing that it has a relatively weak inventory of its own.
Yahoo is not keeping this a secret. On the contrary, Yahoo has told the NY Times that the two companies met, and that Yahoo, “We must insist that Facebook either enter into a licensing agreement or we will be compelled to move forward unilaterally to protect our rights.”
Yahoo’s shareholders, who will probably get a short-term dividend, should be worried; Yahoo’s innovation ended about 10 years ago. Facebook is already ten times Yahoo’s size, and keeps innovating (for better or worse).
More analysis from a guy who called this a mile away: Techcrunch.