Facebook has just taken strong aim back at Yahoo’s patent lawsuit with an answer and counter-claim filing of its own, alleging infringement over a number of issues.

“From the outset, we said we would defend ourselves vigorously against Yahoo’s lawsuit, and today we filed our answer as well as counter-claims against Yahoo for infringing ten of Facebook’s patents,” said Ted Ullyot, general counsel of Facebook. “While we are asserting patent claims of our own, we do so in response to Yahoo’s short-sighted decision to attack one of its partners and prioritize litigation over innovation.”

In its counter-claim filing involving 10 patents held by Facebook, the social networking giant said that Yahoo is infringing via a wide range of its offerings, including its homepage, content optimization, relevance engine, Flickr photo-sharing service and advertising throughout its huge site.

You know: The ads that make up most of Yahoo’s revenue.

In other words, Facebook CEO and co-founder Mark Zuckerberg does not like being poked by new Yahoo CEO Scott Thompson, especially on the eve of a $100 billion IPO.

You might have heard that Facebook is going public and it’s a big deal around Silicon Valley, which is why no one much liked Yahoo’s skunk-at-a-garden-party legal move two weeks ago.

Yahoo fired back at Facebook’s firing back, in a statement:

“We have only just received Facebook’s answer and counterclaims, but on their face we believe they are without merit and nothing more than a cynical attempt to distract from the weakness of its defense. As we have made clear from the outset, the unauthorized use of our patented technology is unacceptable and must be resolved appropriately. Other leading companies license these technologies, and Facebook must do the same or change the way it operates. We have proposed that Facebook join us in discussions to resolve the matter, but our overtures have been rejected. As a result, we are prepared to continue to seek redress through the courts.”

The new filing could not come at a worse time for Yahoo, which will announce thousands of layoffs of employees tomorrow morning, in a wrenching restructuring to revive its lackluster business.

In its legal filing, Facebook also pushed back on assertions in Yahoo’s initial patent lawsuit, noting that it denies that “[w]ithout Yahoo!’s achievements, websites such as Facebook would not enjoy repeat visitors or substantial advertising revenue.”

I think Facebook — which is sure to try to drag this thing out for a long, long time — just called Yahoo a tech loser.

Here is the full document:

FB_ANSWER_AND_COUNTERCLAIMS

More to come, obvi.

Here I am talking about the whole enchilada on WSJ Live’s News Hub.

It was Yahoo legal head Mike Callahan who had the thankless task yesterday of calling Facebook’s general counsel Ted Ullyot to tell him the Silicon Valley Internet giant was intent on pursuing patent lawsuits against the social networking giant.

The charge was being led by Callahan, as well as Chief Product Officer Blake Irving and, especially, Yahoo’s new CEO Scott Thompson.

Much of Yahoo’s senior leadership had no idea of the impending move until Callahan informed them it was about to happen at meeting Monday.

Facebook had known of the patent concerns of Yahoo for some months — the issue had also gotten some coverage in the media — but had not engaged formally on the topic, several sources said.

So, the suddenly aggressive call also apparently blindsided Facebook, even though it had been aware of the possibility of such an outcome.

Thus, it had little time to respond, since Yahoo was also simultaneously briefing the New York Times, according to numerous sources at both companies, and then released an astonishing statement to the newspaper:

“Yahoo has a responsibility to its shareholders, employees and other stakeholders to protect its intellectual property. We must insist that Facebook either enter into a licensing agreement or we will be compelled to move forward unilaterally to protect our rights.”

Apparently, Yahoo’s new motto: If you can’t beat ‘em — and it can’t — sue ‘em.

That would be Yahoo — the perpetual 98-pound weakling of the Internet these days — threatening powerful Facebook, which had cleanly bested it by attracting hordes of users with a plethora of popular products and services.

Yahoo has already lost its audience to Facebook, which was most recently followed by its frittering away a commanding lead in display advertising, too.

That would also be the Yahoo whose most recent success in improving its increasingly tenuous connections with customers was, in fact, by deeply integrating Facebook’s social hooks into its Web properties.

That would be the Yahoo which has failed time and again to innovate its own offerings so drastically over the years that it has now apparently decided that its first and best strategic move under Thompson’s rule is a shakedown.

Such a cynical move on rights Yahoo has long held seems more a play for the cheap seats of Wall Street, given that the company needs to look like it is doing everything it can to turn things around right now as it faces a proxy challenge.

First, it ended difficult talks with its Asian partners, Alibaba Group and SoftBank, over selling back lucrative stakes there.

Now, according to sources, Yahoo’s Thompson has actually been trying to make very nice with activist shareholder Daniel Loeb of Third Point — on-the-down-low chitchats that might have played a part of this latest unusual move.

At least Kodak had a good excuse. The once iconic camera company had recently been trying to take advantage of its trove of patents as a way to stave off declaring bankruptcy.

That didn’t work for Kodak, and it will also not work for Yahoo, whose only real option is to try to innovate its way out of the mess it has landed itself in.

You know, with good ideas.

Instead, the company’s leadership has opted for a road that could rain down trouble and paint Yahoo as a company bereft of talent to win any other way.

And while a range of intellectual property lawsuits have broken out all over the digital sector, involving Apple, Microsoft, Google and many others, such a strategy for Yahoo could be dangerous if it fails in its legal effort to take advantage of its 1,000-plus patents, including those related to search and advertising.

Others — including such tech luminaries as LinkedIn’s Reid Hoffman, who co-owns the seminal Six Degrees patent for constructing a networking database and system — hold a number of critical social networking patents, too, so who knows where this thing will go.

Nonetheless, Yahoo has decided to emulate those companies with one of the few valuable assets it might have, waging its little war, right as Facebook is in the midst of its initial public offering period.

Yahoo has done this before, of course, having wrangled with Google until right before it went public in 2004 over search patents from its Overture acquisition. The pair settled 10 days before the Google IPO, with Yahoo getting several million more shares of that stock (which it then, of course, sold too soon).

That certainly could happen here, with Yahoo managing to grab a chunk of Facebook’s pre-IPO stock.

That would mean that Yahoo’s most valuable asset would be those shares, as well as its stake in Asian companies it bought a while back for a bargain and now makes up a bulk of the company’s valuation.

As to Yahoo’s core business — investors consider it almost entirely worthless.

And let’s not forget: Facebook could also sue right back, which it very well might do. Or, perhaps, cut off agreeable ties that have aided Yahoo in recent years.

In other words, in poking Facebook, Yahoo might now learn what it is really like to be de-friended.

Bush’s visit to Facebook was his only stop in Silicon Valley on his current autobiographical book tour, a coup for the six-year-old company. Zuckerberg had kind words for the former president, telling him he “always admired” him for sticking to his guns, despite criticism.

Bush–who said his technology tools of choice are a BlackBerry, an iPad and “the Facebook”–told Zuckerberg he chose to speak at Facebook, “cause you got a lot of people paying attention to us and I’m trying to sell books.”

Perhaps it also had something to do with a friend in common: Ted Ullyot, current VP and general counsel at Facebook and former deputy assistant to Bush, who helped facilitate the discussion, which was in front of an audience of employees in Palo Alto, Calif. and broadcast live on Facebook to an audience of about 6,500.

The conversation was jovial, with Bush making fun of Zuckerberg for his interest in education reform, despite the fact he hasn’t graduated from college. When Zuckerberg pressed Bush on his ideas about improving education, Bush suggested they should do a “joint venture.”

Recognizing their commonalities as widely criticized leaders, Bush offered Zuckerberg some management advice:

Don’t bow to criticism: “If you believe in what you’re doing, then the criticism means nothing. The worst thing you can do as a leader is change who you are.”

On team dynamics: “I believe in creative tension, but the key for a leader is to understand when it gets out of hand and make the tough call.”

More specifically, Bush said, “At the end of my first term, creative tension became creative destruction. I made the decision I couldn’t manage it any more and decided to change entire national security team.”

Keep your door open: “It’s important for a leader to give people access…It’s part of building a culture of mutual participation.”

It’s not about you: Bush said he was proud of creating “an environment where people weren’t serving me, but were serving the country first and foremost.”

Have a vision: “You can’t lead, by the way, unless you know where you’re going,” Bush said, telling the famously strong-willed Zuckerberg, “This really sounds like I’m pandering to you, doesn’t it?”

You can view the full interview here.

Please see the disclosure about Facebook in my ethics statement.

Dear Elliot Schrage:

BoomTown wins.

As Sheryl knows from experience, don’t mess with the Swish. Or Texas. Or Zohan.

Just don’t mess.

For everyone else, here is the entire memo that Facebook sent out this week from CEO and founder Mark Zuckerberg to its 800-person staff about the departure of CFO Gideon Yu and the financial status of the Silicon Valley social-networking start-up, which some had been questioning.

According to the memo, there is a company Q&A tomorrow about it all too! What should I wear?

UPDATE:In a version of the memo I first posted, there was a repeated paragraph, with slight differences. This might have been a software error–several versions I got of this entire memo had different punctuation in various places.

In any case, I eliminated the extra repeated graph and I changed one part below of “we are” to “Facebook is” in brackets.

COMPANY CONFIDENTIAL–DO NOT FORWARD

Hey Everyone–

Today ends the first quarter of 2009, so I wanted to send out an update on our growth and financial progress, as well as a couple of changes we are making.

Our user growth has been extraordinary over the past year and has continued to be strong throughout Q1. We are getting very close to reaching our 200 millionth active user. This is pretty remarkable considering we just reached 100 million actives a little more than seven months ago. We have become the top site for sharing information on the web, and this gives us a good strategic position to help people share even more.

I am also pleased that our financial progress has been very strong as well. While we came into this year wondering how the recession might affect us, our financial performance in the first quarter surpassed our expectations. As other businesses around us are slowing down and cutting back, we continue to grow around the world. Our advertising products are becoming more attractive for advertisers and we have seen strong growth in both our domestic and international direct sales and online sales channels.

Even in the current economic environment, we are confident that this success will continue. Based on our first quarter results, we now believe we are on track to see our revenue grow by at least 70% this year. We just completed our fifth straight quarter of EBITDA profitability. And most importantly, we expect to achieve free cash flow profitability next year. That’s an important measure of financial success and sustainability because it means we’d be able to fund all of our operations and server purchases from the cash we generate while increasing our cash reserves in the bank. Hitting these numbers will require continued hard work, discipline and execution by everyone here at Facebook, but we are on the path to achieve these goals.

As we ramp up to take on these challenges, I want to let you know that Gideon Yu will be leaving the company. Gideon has played an important role in helping us achieve our financial success, building a strong finance team and establishing the core financial operations of our company. I will always be grateful to Gideon for his contributions to Facebook and what we are trying to accomplish. As those of you who know him know, Gideon’s family is his highest priority and it’s certainly not the usual cliché to say that he plans to take some time off to be with his wife and son. Gideon and I have often discussed that the next stage of his career will likely be as an investor, and I fully support him in this regard.

We have retained Spencer Stuart to search for a new CFO and we will be looking for someone with public company experience who can help take us to the next stage in our growth.

In the interim, the finance team will report to Cipora Herman in her capacity as Treasurer and Ted Ullyot as mteam lead. In addition, [Facebook is] fortunate that Peter Currie, the former CFO for Netscape, has agreed to serve as the advisor to Facebook until a new CFO comes on board.

As always, please feel free to reach out to me or to others on mteam if you have any questions about our finance plans or organization. I’ll discuss this more at the Q&A on Friday and I will be happy to take questions then too.

Congratulations to everyone on a great start to the year and on all the momentum you have all helped build for the rest of 2009.

Mark

• First and foremost, this week’s big slide on Wall Street hit tech stocks with a vengeance, too, disproving Google CEO Eric Schmidt’s assertion a little more than a week ago: “My guess is that the drama is New York and not here.” Ouch. But don’t say BoomTown didn’t warn you.
• Ted Ullyot, Facebook’s new general counsel, has “strong ties to the Republican Party.” Including a stint in former U.S. Attorney General Alberto Gonzales’s office, where, as chief of staff, he handled the government’s response to the the leak of CIA operative Valerie Plame’s indentity. “Ted’s arrival demonstrates we’re a little more grown up.” No word on whether or not you need to change your status immediately.
• Unsurprisingly, the ad partnership between Yahoo and Google is on hold so the Justice Department can spend more time reading the small print. The much debated deal is now also much delayed.
  Google will spend the interim rolling out Clean Energy 2030, a $4.4 trillion dollar plan to transition the country from coal and oil dependence to clean energy. And to lower the gas and electric bills on all those Google data centers.
• People have some strong ideas about the term “cloud computing”–if not about the concept itself. In September, Oracle CEO Larry Ellison said, “Maybe I’m an idiot, but I have no idea what anybody is talking about … It’s complete gibberish.” Well, Steve Ballmer doesn’t think so–though what he coyly announced this week at Microsoft’s Professional Developer Conference will go by another name. Or maybe not. Says Ballmer: “Let’s just call it for the purposes of today ‘Windows Cloud.’” Let’s.
• Walt Mossberg lays out the different ways to make a Mac emulate a PC, including one option that’s just gotten better. He also answers readers’ questions, which this week include issues about following features from one version of Microsoft Office to another, dealing with malware, and embarrassing CD misidentifications.
• And in a showdown at the iTunes Corral, Apple walked off into the sunset with its profit margin intact. It was threatening to shut down the iTunes Store if the Copyright Royalty Board were to raise royalty rates 66 percent–as had been proposed by the National Music Publishers’ Association.
]]> http://allthingsd.com/20081004/weekend-update-100308/feed/ 0 http://allthingsd.com/20081001/ullyot/ http://allthingsd.com/20081001/ullyot/#comments Wed, 01 Oct 2008 13:52:38 +0000 John Paczkowski http://digitaldaily.allthingsd.com/?p=6024 “Ted has extremely strong connections with the Republican party, and we think that’s a good thing.” That’s what Elliot Schrage, Facebook’s vice president of communications and public policy, had to say about Ted Ullyot, who joins the company as its vice president and general counsel this month. A former chief of staff to former U.S. Attorney General Alberto Gonzales, Ullyot handled the government’s response to the leak of CIA operative Valerie Plame’s identity. He’s the latest high-profile addition to the company’s management team–which now includes a handful of Google (GOOG) veterans, one of whom once served as chief of staff at the Treasury Department during the Clinton administration. Ullyot “has an extraordinary combination of private legal practice and public sector experience,” Schrage told the Los Angeles Times. “So many of the legal issues we face touch on both of those arenas. He is equally comfortable helping us expand internationally as he is in helping us navigate complicated legal issues we may face in Washington. Ted’s arrival really demonstrates we’re a little more grown up.”
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