Facebook Admits Yahoo! Problem in Filing

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Facebook filed a new document in its move toward its IPO. In that document, it admitted that Yahoo!’s (NASDAQ: YHOO) patent claims are a risk to its business. That means that Facebook’s $100 billion may be at risk. And other companies, which could include AOL (NYSE: AOL), have begun the process of monetizing patents approved during the early years of the Internet.

In the filing, Facebook said:

From time to time, we receive notice letters from patent holders alleging that certain of our products and services infringe their patent rights. Some of these have resulted in litigation against us. For example, on March 12, 2012, Yahoo filed a lawsuit against us in the U.S. District Court for the Northern District of California that alleges that a number of our products infringe the claims of ten of Yahoo’s patents that Yahoo claims relate to “advertising,” “social networking,” “privacy,” “customization,” and “messaging.” Yahoo is seeking unspecified damages, a damage multiplier for alleged willful infringement, and an injunction. We have not yet filed an answer or asserted any counterclaims with respect to this complaint. We intend to vigorously defend this lawsuit. This litigation is still in its early stages and the final outcome, including our liability, if any, with respect to these claims, is uncertain. If an unfavorable outcome were to occur in this litigation, the impact could be material to our business, financial condition, or results of operations.

The Facebook IPO is probably only weeks away. The debate over the harm Yahoo!’s case could cause will accelerate. And the estimates of the damages will begin almost immediately.

Douglas A. McIntyre