Patents: Facebook v Yahoo continued; if you can’t beat them, join them

29 March 2012

It has been reported that Facebook has responded to Yahoo’s recent patent infringement lawsuit by purchasing a portfolio of 750 patents from IBM.

Details of the specifics of the deal are unconfirmed, but there are reports that some (if not all) of the patents relied on in Yahoo’s suit are licensed to it by IBM and that the rights to those very patents may have just been signed over to Facebook. If that is the case, Facebook may now be in a position to terminate the licences to Yahoo, which could effectively pull the rug out from underneath its claim. However, if infringements have already occurred, it seems unlikely that Facebook can erase the past.

Good news for stock-market speculators…

Regardless of the licensing situation, the move indicates that Facebook will contest or buy its way out of any legal action that comes its way ahead of its planned stock market flotation later this year. This is significant for would-be litigants and investors alike.

Indeed, even if it weren’t currently facing a legal claim, the deal would have been advantageous to Facebook. Prior to the transaction, Facebook had a portfolio of only 56 patents (with 503 applications outstanding) which, in Silicon Valley terms, made it look like a relatively soft target for speculative litigation. For comparison purposes, Yahoo currently holds over 3,300 patents and outstanding patent applications.

By boosting the size of its portfolio so considerably, Facebook is giving itself far greater resilience against current and future claims, which makes it a more formidable opponent for potential claimants and, crucially, a more appealing choice for investors.

… but less rosy for tech innovators?

However, while it i’s certainly good fun to watch a clash of Silicon Valley titans unfolding in such dramatic fashion, the narrative serves as a slightly grim reminder that the best way to respond to patent litigation (regardless of its merits) may be with more patents.

As I mentioned in a previous blog, the descriptive nature of software patents means that each one can potentially be used to describe the function of a wide range of products. In turn, this means that it i’s possible for both sides of a dispute to hold a patent (or patents) that seem to cover the function of the product in question. Where that situation occurs, the cost of litigation inevitably rises for the claimant, accompanied by a sharp drop in its overall chances of success.

For a financially solvent organisation like Facebook, buying up portfolios is a viable move to head off litigation from other patent holders. Consider, however, the difficult position that it would be in if this litigation had occurred, say, five years ago, when it was less able to buy up intellectual property rights in order to strengthen its defences.

It’s a stark illustration of the difference that financial firepower can make in patent cases and one which can only strengthen the hands of critics who argue that the current patent regime has a stifling effect on the kind of small, financially vulnerable, firms that bring so much innovation to the market.

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