Kara Swisher

Recent Posts by Kara Swisher

In Pricey Microsoft Patent Deal, Facebook Delivers Another Smackdown to Yahoo Lawsuit

When I wrote that Facebook was going to play rough after Yahoo sued it for patent infringement earlier this year, perhaps it would have been more prescient to say that it was going to pay much.

Except not to Yahoo, whose bully-boy bluff has effectively just been called.

Instead, the social networking giant scooped up 750 patents from IBM in March for an undisclosed amount and today paid $550 million in cash for 650 patents that Microsoft recently bought from AOL.

Facebook’s message to Yahoo, which had previously been a strong partner to the Silicon Valley Internet giant pre-lawsuit: We reward friends and, well, countersue enemies.

Where that leaves the case between Yahoo and Facebook is in a legal quagmire that will now see the defendant armed to the teeth against the plaintiff.

The lastest move, which was announced this morning, involves the patents that Microsoft bought from AOL for $1.1 billion. While the price was considered high, the software giant has now recouped half its investment and also helped out Facebook, in which it holds a stake and is a longtime search partner.

Facebook is poised to go public in mid-May, and has been trying to strengthen its weak patent portfolio, especially after Yahoo attacked in March over 10 social networking patents.

“Today’s agreement with Microsoft represents an important acquisition for Facebook,” Ted Ullyot, the company’s general counsel, said in a statement. “This is another significant step in our ongoing process of building an intellectual property portfolio to protect Facebook’s interests over the long term.”

Where it leaves any talks with Yahoo to settle their dispute is unclear. Yahoo CEO Scott Thompson has maintained in several public statements that the company would continue to defend its intellectual property rights.

But with the latest deal with Microsoft, it is clear that Facebook is more likely to continue its hard line against Yahoo and less likely to settle as quickly and pay up to get Yahoo’s patent portfolio, too.

“They tried to shake us down,” said one person close to the situation. “And we don’t appreciate that.”

Not to be outdone, Yahoo took yet another oh-yeah tough stance today in a statement to me, after news of the Facebook-Microsoft deal was out:

“Nothing about today’s action changes the fact that Facebook continues to infringe our patents. Companies who purchase patents are often working from a position of weakness and take these actions to strengthen their portfolio. We see today’s announcement as a validation of our case against Facebook.”

And a validation of Facebook’s intent to spurn Yahoo, too, which is creating a troubled situation for Microsoft, since it also has a search partnership with Yahoo.

That deal has been rocky and, in a recent earnings call, Thompson underscored that Microsoft efforts at improving performance and monetization was still facing headwinds.

That situation has led to talks between the pair to rejigger the deal, several sources said, even as Microsoft helps Facebook improve its patent defenses.

Microsoft’s top lawyer Brad Smith didn’t say as much, in an interview with AllThingsD.com writer Ina Fried, but he acknowledged Microsoft is in a dicey situation with two of its partners.

“We have a very high regard for the value of the Yahoo patent portfolio,” Smith said. “It’s an important portfolio that reflects all of the tremendous value Yahoo brought to this space and we are very sensitive to the importance of our relationship with Yahoo and our relationship with Facebook.”

In other words, a delicate dance begins with much bluster ahead.

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Nobody was excited about paying top dollar for a movie about WikiLeaks. A film about the origins of Pets.com would have done better.

— Gitesh Pandya of BoxOfficeGuru.com comments on the dreadful opening weekend box office numbers for “The Fifth Estate.”