Yahoo Inc.'s attempt to wring patent fees from Facebook Inc. reflects the increasing worth of social networking sites, legal experts say, as well as an effort by Yahoo's recently installed leader Scott Thompson to ferret out new revenue opportunities at the struggling Internet company.
Earlier this week, Yahoo told Facebook that it is infringing on up to 20 patents related to the social aspects of features such as privacy controls and advertising.
Yahoo is seeking licensing fees, and indicated it may file suit over the matter. Facebook says it is still evaluating Yahoo's claims.
Julie Samuels, a staff attorney at the Electronic Frontier Foundation, said an increase in patent disputes related to social networking is inevitable, given growing profits at social networks such as Facebook. The Menlo Park, Calif., company has filed for an initial public offering that could value it at $100 billion, and it has reported that it pulled in more than $3.7 billion in revenue last year.
Ms. Samuels said the shift to social-networking patents is an extension of a widening war over software patents more generally.
"That's the next logical space where this fight will continue," Samuels said. Software patents, she said, tend to be "vague, overbroad, hard to understand and they just don't make a lot of sense. So they're able to be used offensively time and again."
Yahoo, of Sunnyvale, Calif., holds a number of patents related to online social networking. One issued to the company in 2009, for example, covers a way for users to search the Internet together and share results with a larger community. Another issued last year describes a way to automatically recommend contacts to a user so they can be invited "to join their social network," according to public filings.
However, Yahoo doesn't offer a specialized social service similar to Facebook or Google Inc.'s Google +. Last year Yahoo folded its Buzz social service, which could enable users to rate and share news stories, though current Yahoo services such as its Flickr photo service feature social aspects.
Ron Martinez, an inventor who worked at Yahoo as vice president of intellectual property innovation from 2005 to 2009 and is named on a number of its social patents, said the company's intellectual property portfolio was relatively unimpressive when he joined.
Mr. Martinez said he helped oversee a shift to developing innovations at Yahoo not tied to existing or forthcoming products, in a number of fields including social networking. "That was our practice in areas likely to be strategic to the company or competitors in the foreseeable future," he said.
Working with a core team of about five people and frequently tapping other talented Yahoo employees, Mr. Martinez said "we ended up with one hell of a social portfolio" of patents.
Herman Leung, an analyst who covers Yahoo for Susquehanna International Group, said the patent dispute with Facebook results from Yahoo trying to make money using available assets.
Yahoo has also sought to tap into social-networking demand by partnering with Facebook. Last year, Yahoo announced a tie-up with Facebook that can send traffic to its sites from the social service.
That partnership was announced prior to the appointment of Mr. Thompson as Yahoo's CEO last month. He was formerly president of eBay Inc.'s PayPal payments unit.
Mr. Thompson has said publicly that Yahoo needs to explore new ways to exploit its valuable assets, and to seek out new revenue streams.
Facebook may feel compelled to settle the patent dispute with Yahoo before its IPO, according to Lance Lieberman, an intellectual property attorney with Cozen O'Connor in New York.
While companies often submit themselves to a public valuation and investment while still dealing with lawsuits filed by so-called patent trolls, "it's another thing to come up against a large company with a large portfolio," Mr. Lieberman said.
In a statement, Yahoo said it aims to enforce its claims against Facebook because it has a responsibility to shareholders and employees to protect its intellectual property.
WSJ's Rolfe Winkler makes a stop on Mean Street to take a look at Yahoo's patent infringement accusation against Facebook. Photo: Getty Images.
Yahoo is seeking licensing fees, and indicated it may file suit over the matter. Facebook says it is still evaluating Yahoo's claims.
Ms. Samuels said the shift to social-networking patents is an extension of a widening war over software patents more generally.
"That's the next logical space where this fight will continue," Samuels said. Software patents, she said, tend to be "vague, overbroad, hard to understand and they just don't make a lot of sense. So they're able to be used offensively time and again."
Yahoo, of Sunnyvale, Calif., holds a number of patents related to online social networking. One issued to the company in 2009, for example, covers a way for users to search the Internet together and share results with a larger community. Another issued last year describes a way to automatically recommend contacts to a user so they can be invited "to join their social network," according to public filings.
However, Yahoo doesn't offer a specialized social service similar to Facebook or Google Inc.'s Google +. Last year Yahoo folded its Buzz social service, which could enable users to rate and share news stories, though current Yahoo services such as its Flickr photo service feature social aspects.
Ron Martinez, an inventor who worked at Yahoo as vice president of intellectual property innovation from 2005 to 2009 and is named on a number of its social patents, said the company's intellectual property portfolio was relatively unimpressive when he joined.
Mr. Martinez said he helped oversee a shift to developing innovations at Yahoo not tied to existing or forthcoming products, in a number of fields including social networking. "That was our practice in areas likely to be strategic to the company or competitors in the foreseeable future," he said.
Working with a core team of about five people and frequently tapping other talented Yahoo employees, Mr. Martinez said "we ended up with one hell of a social portfolio" of patents.
Herman Leung, an analyst who covers Yahoo for Susquehanna International Group, said the patent dispute with Facebook results from Yahoo trying to make money using available assets.
Yahoo has also sought to tap into social-networking demand by partnering with Facebook. Last year, Yahoo announced a tie-up with Facebook that can send traffic to its sites from the social service.
That partnership was announced prior to the appointment of Mr. Thompson as Yahoo's CEO last month. He was formerly president of eBay Inc.'s PayPal payments unit.
Mr. Thompson has said publicly that Yahoo needs to explore new ways to exploit its valuable assets, and to seek out new revenue streams.
Facebook may feel compelled to settle the patent dispute with Yahoo before its IPO, according to Lance Lieberman, an intellectual property attorney with Cozen O'Connor in New York.
While companies often submit themselves to a public valuation and investment while still dealing with lawsuits filed by so-called patent trolls, "it's another thing to come up against a large company with a large portfolio," Mr. Lieberman said.
In a statement, Yahoo said it aims to enforce its claims against Facebook because it has a responsibility to shareholders and employees to protect its intellectual property.
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