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Daily News, General Musings, Pop Law

Clash of the (Social Media) Titans

via Lee Bailey's Eurweb

And here it is. The first time two wholly internet based (social) media companies go head to head in litigation… Kind of.

There are many industries and subsets of industries that exist out in the world. One of the newest is social media having seen its development in earnest within the last decade or so. Given its relatively short life, we have yet to see any real game changing litigation between any social media companies.

However, on Monday Yahoo! took a step toward starting exactly that when it filed a lawsuit against Facebook for infringing ten of its patents.

Facebook apparently had yet to receive process by the time the news broke and learned of it the same way everyone else did. They called the suit “puzzling.” Which, of course is about what you would expect from a company that was founded on a little bit of treachery like Facebook was.

Actually, the two media companies had been discussing resolving their differences via a licensing agreement not so long before this. Talks recently broke down between the two, and as is more or less standard practice, a lawsuit followed. Not very puzzling at all.

Even less puzzling is the fact that this kind of thing happens all the time in other industries. A great example is the pharmaceutical industry where there are a few small companies and several mega corporations that are all striving to invent the cure for the common cold and then patent it before anyone else can. When the patent is secured it means that companies can no longer produce that product without the permission of the patent holder, and of course without paying a hefty sum. When these companies try to create substantially similar products without licensing the original, they usually get sued (see Viagra, Cialis, etc.).

These lawsuits typically suck most of the industry in, and they are a fact of life for companies that create novel, but easily reproduced products.

While Yahoo! has been floundering a bit as a company with more or less flat revenue, they have been very productive during their existence procuring over 3,300 patents for various internet processes. They, much like Al Gore, have truly helped build the internet. Because of that production, much of it concerning methods for generating internet ad revenue, a great number of companies have had to license Yahoo!’s patents, including Google.

In fact, back in 2004, Yahoo! pulled almost this exact same move against Google when it was preparing to go public, ultimately resulting in $201 million in cash coming back to Yahoo!.

Of course, this is a proverbial monkey wrench in Facebook’s IPO plans. As such it represents a significant point of leverage that Yahoo! has in wrenching a settlement out of Facebook which is why this is perhaps a sort of all-consuming knockdown drag out type of thing.

Given that 1,000 or so millionaires, including your average Facebook employee, there will be significant internal pressure to avoid a protracted legal battle between the two media companies.

This is most interesting because there has yet to be any really game changing litigation this industry and when it happens, it could really change the way things look and feel across the internet. Facebook, Yahoo!, Google, Zynga, and many others could end up parties to this suit, as this not only concerns what are probably widely used patents, but also perhaps sly attempts to get in on Facebook’s IPO money.

That is certainly a reason for Yahoo!’s timing here as they know that Facebook will be able to foot the bill for a settlement, and Yahoo! very well could grab some equity in Facebook like they did in Google.

The move can also be considered an aggressive first real move from their new CEO who took over in January. Given the pressure he is under to make Yahoo! a player again, we may actually see a solid throw down.

We’ll keep our eyes peeled for the result of this suit. We have certainly harped on things like SOPA and Protect IP enough, but corporate litigation is also a way to see unwanted changes to the internet.

At the end of this suit, we could see something like: “The Internet, Brought To You By Yahoo!” ads everywhere.

About E.C.

Corporate and regulatory attorney. Also experienced in advocacy for the mentally disabled and minor litigation matters. Not currently practicing, but maintaining the blog to keep my research and writing skills sharp. Splitting time between Connecticut and Massachusetts.

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