M&A angle seen in Yahoo patent demand on Facebook

SAN FRANCISCO Tue Feb 28, 2012 6:08pm EST

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SAN FRANCISCO (Reuters) - Yahoo could be trying to boost its acquisition value by demanding licensing fees from Facebook for the use of its technology, as the one time Web-pioneer considers strategic M&A options, according to patent experts.

Representatives from the two companies met on Monday with Yahoo asserting claims on 10 to 20 of Yahoo's patents, according to a source briefed on the matter. Yahoo has asserted claims involving technical mechanisms in Facebook's ads, privacy controls, news feeds and messaging service, said the source, who was not aware of what specific dollar demands Yahoo may have made for licenses.

Yahoo did not elaborate in an emailed statement on details of its discussions with Facebook, but indicated it would not flinch at taking the social networking giant to court over its patents.

Should Yahoo sue Facebook, it would mark the first major legal battle among technology giants in the social media sphere and ramp up patent litigation that has already swept up the smartphone and tablet sectors among high-tech stalwarts Apple Inc, Microsoft Corp and Motorola Mobility.

The dispute comes as investors eye different strategic alternatives for Yahoo. By threatening litigation against Facebook, Yahoo could be trying to send a signal to the deals market about the strength of its entire patent portfolio, said Ron Laurie, a specialist in IP and investment banking with Inflexion Point Strategy.

"It's a very low-cost, low-risk way of getting a significant kick in acquisition value," Laurie said.

A Yahoo spokesman declined to comment on Tuesday.

Yahoo's revenue slid by more than a fifth last year, and the company brought in former PayPal President Scott Thompson as chief executive in January, five months after Carol Bartz was fired. Talks of an asset swap with China's Alibaba Group stalled earlier this month.

LICENSING ARRANGEMENTS

Yahoo said other companies have already licensed some of the technologies at issue, and that it would act unilaterally if Facebook refused to pay for a patent license.

"Yahoo has a responsibility to its shareholders, employees and other stakeholders to protect its intellectual property," the company said.

A Facebook spokesman on Monday said the company hasn't had the opportunity to fully evaluate Yahoo's claims.

Yahoo's patent claims follow Facebook's announcement of plans for an initial public offering that could value the company at about $100 billion.

Several social networking companies, including Facebook, have seen an uptick in patent claims asserted against them as they move through the IPO process.

While a high profile licensing deal could implicitly bolster the value of Yahoo's patent portfolio, it is more likely that Yahoo is trying to take advantage of Facebook in the delicate phase before Facebook's IPO, said David Sunshine, an IP attorney who advises hedge funds.

"It's like sharks smelling blood in the water," Sunshine said.

Most of the lawsuits against fast growing social-media companies have been filed by patent aggregators that buy up intellectual property to squeeze value from companies via licensing deals.

Such a lawsuit would be a change for Yahoo, as the company has never initiated offensive patent litigation against such a large publicly traded company, according to a search of federal court dockets on the legal database Westlaw, a Thomson Reuters unit.

A classic defense for companies targeted with patent claims is to threaten a countersuit using its own patents. But Yahoo possesses far more patents than Facebook. According to a U.S. government database, Yahoo has over 3,300 patents and published patent applications, while Facebook has 160.

"They're a huge target," Laurie said.

(Reporting By Dan Levine; Editing by Bernard Orr)

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