DivX sues Yahoo over ad deal

People walk past Yahoo! offices in Santa Monica, California in this May 19, 2008 file photo. REUTERS/Lucy Nicholson

NEW YORK (Reuters) - Video compression software maker DivX Inc said on Monday it filed a lawsuit against Yahoo Inc for planning to end a two-year advertising services agreement.

DivX said the termination would hurt its results for 2008 and 2009.

The lawsuit was filed in California Superior Court in Santa Clara County, seeking damages and specific performance under the agreement, which was announced in September 2007.

“Yahoo’s decision to breach is unjustified given DivX’s fulfillment of its obligations under the agreement,” said DivX Chief Executive Officer Kevin Hell, adding that his company would aggressively pursue legal action.

Yahoo said it has been working with DivX to restructure their previous agreement but the two companies could not come to an amicable resolution at this time.

“Yahoo is disappointed with DivX’s decision to pursue legal action rather than renegotiate this agreement,” said a company spokesman. “We intend to vigorously defend ourselves in court, but will reserve further comment until we’ve had an opportunity to review the suit,” the Yahoo spokesman added.

DivX said it now sees fiscal 2008 adjusted earnings of 49 cents to 51 cents a share on revenue of $90 million to $92 million, compared with its previous forecast 58 cents to 60 cents a share on revenue of $95 million to $97 million.

Shares of DivX dropped 11 percent to $4.92 in trading after the bell. They closed down 1 cent at $5.53 Monday on Nasdaq, where Yahoo fell 19 cents, or 1.76 percent, to $10.63.

Reporting by Antonita Madonna Devotta in Bangalore; Editing by Anil D’Silva, Richard Chang