Wednesday Grok: Smackdown — Yahoo sues Facebook

Patent trawling exercise reeks of desperation

Tech companies are notorious for turning their legal departments into profit centres. Anyone who has had a key supplier acquired by Microsoft understands what this means. In earlier times, companies like Computer Associates turned license re-negotiation into an art form, and of course they were pretty creative with their accounting as well.

Grok built his early career reporting on Oracle’s egregious treatment of its clients. So, perhaps it’s no surprise that companies like Yahoo would follow the well worn trail of unleashing the lawyers upon the P&L.

But there’s a critical difference. For Oracle CEO, "Leisure Suit" Larry Ellison, the extra money the lawyers raked in was a little more than play dough.

In reality, Larry got rich because he built great software and then sold bucket loads of the stuff to thousands of corporate customers. And they kept coming back — legal shenanigans notwithstanding.

With Yahoo on the other hand, it’s hard to draw any other conclusion than that it has gone thermo-nuclear on Facebook, suing the social networking giant for patent violation across 10 areas because it may have ran out of other ideas for making money.

Given Yahoo’s performance in recent years, it looks like patent trawling is all it’s got left. And frankly, that’s not much of a core business. How sad.

Litigation is not innovation. But at least when the inevitable happens, AltaVista, Looksmart and Netscape will have one more company to keep them company in whatever dark corner of corporate hell Big Dotcoms go to die.

As to the details, according to <i>Mashable</i>, the patents in question include: “Messaging, newsfeed generation, social commenting advertising display, preventing click fraud and privacy controls.”

The companies have been in talks to try and derive a settlement but these apparently broke down.

Now, Grok understands the need to protect intellectual property, and everyone has a right to their day in court, but this looks like a long-term loser for Yahoo.

In fact, Yahoo’s jihad reminds Grok of a famous and flawed attempt by BT to sue everyone in the world* for using hyperlinks, way back in the Web’s infancy. Yeah, that ended well. (*Actually, it initially tried to sue Prodigy Communications as a test case for suing everyone in the world but got beaten like an ostrich egg omelette in court.)

And the timing is a little too cute as well, coming in the run down to Facebook’s IPO. It all seems just a little shabby.

PandoDaily was particularly harsh: “Yahoo is sadly a company that is running itself like a teenager trying to placate angry parents. It’s unable to fix the systemic, underlying problems like its woefully bloated staff, lack of direction and complete failure to adopt any sort of modern strategy. So, like a teenager that has neglected to study all semester and can’t do anything about its failing grades now, it’s trying to take short term measures to please the street.”

PD describes Yahoo’s move as pathetic, and Grok agrees. It’s also ultimately unlikely to work, or at least work fast enough to restore Jerry Yang’s gift to its halcyon glory.

As the story makes clear, Facebook does not have a track record of writing checks to make irritants go away. “Its legal department likes to fight.” And patent wars take a long time to wage, which is time Yahoo doesn’t have.

Over at <i>Business Insider</i>, Matt Rosoff said it’s time for Facebook to call in some favours from Microsoft. At one point, Redmond owned a little less than 2 per cent of Facebook, although that holding has been diluted.

Microsoft and Yahoo have a patent sharing deal via a 2009 search agreement which lets both companies use each other’s patents for search, and Microsoft may have the right to cross license some of the more general patents to third parties like Facebook.

“Whatever the case, it looks like nothing is preventing Microsoft from selling or donating some non-search-related patents to Facebook, then stepping back and watching the fireworks. Either way, it's time for Mark Zuckerberg to pick up the red emergency telephone and dial Redmond.”

Yahoo should have sold out to Microsoft when it had the chance, when it was still worth buying. But its wooden headed leadership simply couldn’t cross that threshold.

Peace out, suckers!

Andrew Birmingham is the CEO of Silicon Gully Investments.

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