Yahoo Turns To Patent Warfare with Facebook in Desperation

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In what can be termed as an unpleasant surprise, Yahoo (NASDAQ:YHOO) recently claimed that social networking giant Facebook is infringing on around 10-20 of its patents, [1] mostly centered around advertising and web personalization. Yahoo is certainly treading a different path with Facebook, given that its Open Graph implementation with the social network brought in impressive web traffic and user engagement results. [2]

See our full analysis for Yahoo’s stock here

But Can You Blame Yahoo?

While many perceive this move to be highly opportunistic and in bad taste, Yahoo’s investors are desperate to see some revenue growth for the company, whichever way it comes. In a legitimate sense, Yahoo has over 1,000 patents, [3] and it has as much right to exercise its intellectual property rights as other tech giants like Google and Apple.

It is still not clear how Facebook plans to respond to this, especially at the crucial “quiet period” before its IPO. But Yahoo would more than happy even if it gets a small-but-steady revenue stream from a possible licensing agreement. Additionally, its involvement in Facebook’s Open Graph is purely in the capacity of an independent partner, and is unlikely to be affected.

We have a revised price estimate of $18 for Yahoo’s stock, which is roughly 23% above the current market price.

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Notes:
  1. Yahoo Stabs Facebook In The Back, Says Pay For Its Patents Or Get Sued, TechCrunch, 28th Feb 2012 []
  2. The Latest Wave of Media Apps to Add to Timeline, Facebook + Media, 17th Feb 2012 []
  3. The Owner of Yahoo!’s Patents Could Cripple Facebook’s IPO Aspirations, Forbes, 11th July 2011 []