This story was written by Keith Dawson for UBM DeusM’s community Web site Business Agility, sponsored by IBM. It is archived here for informational purposes only because the Business Agility site is no more. This material is Copyright 2012 by UBM DeusM.

Yahoo Sues Facebook Over Patents

Those who can, do. Those who can't, sue for patent infringement.

Cementing its crown in the in-agility sweepstakes, Yahoo is suing Facebook for patent infringement. The endgame could be anything from brawl to countersuit and settlement to acquisition.

With its new CEO in place for less than two months, Yahoo has embarked on a dangerous, destabilizing, and unpopular course in slamming the pre-IPO Facebook with ten of its basic patents covering everything from messaging and ad display to customization, spam-fighting, and social networking.

The timing, of course, is most interesting as Facebook is in the quiet period before its IPO. Yahoo has trod this road once before: in 2004, Yahoo sued Google just their search rival was about to go public, asserting a single patent (covering search advertising, and acquired from Overture). Google settled with 9 days to go before the IPO, handing over 2.7 million pre-IPO shares to Yahoo that were valued at $230 million at the time. Yahoo eventually booked gains of nearly $1.3 billion from the transaction.

Possible outcomes
Facebook has not responded substantively at this point; the company has merely expressed puzzlement at Yahoo's action. Here are a few possible ways they might decide to jump.

Fight. Facebook could circle the wagons, take out the big guns, and go after Yahoo's patents in a frontal attack. Venture capitalist Fred Wilson minces no words in suggesting such a course for Facebook:

The patents that Yahoo is suing Facebook over are a crock of s***. None of them represent unique and new ideas at the time of the filing. I suspect they all can be thrown out over prior art if Facebook takes the time and effort to do that.

Facebook might find some leverage in court based on the timing of the various patents Yahoo is asserting. One issued in 1999, but the other nine range from 2005 to 2010. Facebook was founded early in 2004.

Countersue and settle. There are indications that Facebook has been deliberately bolstering its own patent collection over the last couple of years in anticipation of such a lawsuit -- by someone. Estimates in the press of the size of Facebook's patent portfolio vary from 60 to 160, while Yahoo has over 3,300. If Facebook countersues -- as seems likely -- the lopsidedness of these numbers probably means that in a settlement some money or stock would change hands in Yahoo's direction.

Acquire. Perhaps the most radical outcome would be for Facebook to buy Yahoo outright. Facebook has a large pot of pre-IPO stock at its disposal, stock that it is about to turn into cash. The resulting company would have a nearly unassailable patent portfolio (except perhaps by Google, which is about to add 17,000 patents to its stash when the Motorola deal closes).

Could this have been Yahoo's plan all along? To act like a 9-year-old boy who likes a girl and demonstrates it by punching her and pulling her hair?

Tom Murphy just published a speculation on the best directions for Yahoo, and readers have weighed in with nearly 30 comments and suggestions. None of them proposed as the company's best way forward that it touch off an all-out patent war among Internet heavyweights. Agility this is not.