* Dispute centers on allegations of breach of contract
* Judgment has perplexed the tech world
* Yahoo dismisses settlement offer
By Dave Graham
MEXICO CITY, Dec 5 Two companies in Mexico which
won a surprise $2.7 billion preliminary judgment against Yahoo
Inc in a contractual dispute said on Wednesday they may
be willing to settle for less money, which could avoid a long
The ruling by the 49th Civil Court of the Federal District
of Mexico City, which was issued on Friday and perplexed the
tech world, involves allegations of breach of contract related
to an online yellow pages listings service, according to Yahoo.
The lawsuit was filed in November 2011 by Worldwide
Directories S.A. de C.V. and Ideas Interactivas S.A. de C.V.
against Yahoo and Yahoo de Mexico.
Carlos Bazan-Canabal, who says he is a partner in both firms
and is named as their strategic planning director in copies of
the court ruling obtained by Reuters, said the plaintiffs were
prepared to listen if Yahoo made an offer.
"If we can reach a settlement with an interesting number, we
would go for it," Bazan-Canabal told Reuters, adding it could be
for less than the preliminary award. "It's up to them."
He later told Reuters that before the judgment, the
companies had made a settlement offer for less than the sum
awarded by the court and Yahoo had rejected it. He did not
disclose further details of that offer and stressed that the
plaintiffs did not feel the need to press Yahoo for a
"If there's no intention from Yahoo to get a hold of us and
potentially reach a settlement, we will pursue all roads both in
Mexico and around the world where we might be entitled to
compensation," said Bazan-Canabal, who has been meeting lawyers
in the United States this week about the dispute.
Bazan-Canabal, who noted there were "less than five" people
behind the case against Yahoo, said there were still potential
damages in the suit that had not yet been calculated.
"This potentially could go up to over $3.5 billion," said
Bazan-Canabal, a former employee of Yahoo de Mexico.
Yahoo believes it has "numerous" grounds to appeal,
including both errors in procedure and in application of law, a
person familiar with the matter told Reuters.
Yahoo was dismissive of any suggestion of settling.
"We're not going to comment on our legal strategy, beyond
the fact that we believe the claims are without merit and will
vigorously pursue an appeal," a company spokeswoman said.
A JPMorgan analyst said the judgment, if sustained, would
cost the company an estimated 40 percent of its 2012 cash
balance, as projected by the bank.
Despite the court's judgment, the ruling noted that Yahoo's
objections had been "partially well founded."
Bazan-Canabal said the dispute centered on agreements signed
between Yahoo de Mexico and Ideas Interactivas between 2002 and
2004 over a venture for an online business search function
"Yahoo! Paginas Utiles" as well as printed volumes.
Yahoo Inc. also entered into agreements with the Mexican
company in those years, the court documents showed.
After initial success with the yellow pages search project,
the two sides agreed to extend the model to other parts of the
world including Puerto Rico, Central America, Australia and
Japan, Bazan-Canabal said. But Yahoo in 2005 notified Ideas
Interactivas it was terminating the deal, he added.
The joint agreement had been due to last until 2009, with
options to extend it into 2011, he said. Breaking the deal
caused Ideas Interactivas to go bankrupt, Bazan-Canabal said.
"We weren't able to update listings and so forth, and that
brought as a consequence us being in default with our
advertisers," he added, noting that Ideas Interactivas had more
than 300 employees in Mexico in 2004.
The ruling said the damages awarded to the plaintiffs
include a $2.4 billion sum related to alleged non-compliance
with agreements, covenants and non-disclosure agreements or
confidentiality agreements linked to the joint expansion plans.
It also orders the return of the original database owned by
Ideas Interactivas and Worldwide Directories, which
Bazan-Canabal said was set up as a holding company for the
The ruling also says Yahoo de Mexico filed a counterclaim
against Worldwide Directories, seeking damages relating to
advertising rights and other alleged infringements.
Any appeal by Yahoo is expected to be heard by a panel of
three judges in a superior court in Mexico City.
An official at the district court in Mexico City said Yahoo
had until about Jan. 11 to appeal.
Bazan-Canabal, who operates a host of websites, said he
joined Yahoo in 1999 and later helped to launch Yahoo de Mexico.
A Yahoo spokeswoman confirmed he worked for Yahoo de Mexico,
but declined to comment further.
Yahoo's most recent 10Q filing, which lists major ongoing
legal proceedings, makes no mention of the lawsuit.
Shares of Yahoo fell 0.2 percent to close at $18.89 on