Facebook, Yahoo! settle patent dispute, will share IP and advertising

Internet giants Facebook and Yahoo! have finally reached a settlement over a nasty patent dispute that originated at the beginning of the year, agreeing to let each other cross-license their entire patent portfolios and share advertising – without either party exchanging funds.

The agreement could also be a huge win for interim Yahoo! chief executive Ross Levinsohn, perhaps allowing him to transition into the role on a permanent basis as the company struggles to become competitive.

The settlement also gives hope a similar argument won’t pop up again, with the companies now forming a content-sharing alliance and signing an agreement that says they cannot sue each other over patents.

”We are looking forward to building on the success we have already seen, to provide innovative new products and experiences for both consumers and sponsors,” Levinsohn said in a statement.

”Combining the premium content and reach of Yahoo! as the world’s leading digital media company with Facebook provides branded advertisers with unmatched opportunity.”

The case originated in February, when Yahoo! confirmed it would sue Facebook if the two companies could not come to an agreement concerning 10 of its patents covering advertising, privacy controls and social networking.

Former chief executive Scott Thompson believed Facebook was benefiting from Yahoo’s ideas – specifically from 10 individual patents covering privacy controls and social networking.

Facebook countersued in April, saying the company had violated many of its own patents as well, and Yahoo! escalated the dispute by adding another two patents to the infringement claims.

But when Thompson was ousted for misstatements regarding his academic credentials, Levinsohn’s appointment was seen as an opportunity to settle.

According to All Things Digital, the settlement contains an agreement to cross-license both entire patent portfolios without any exchange of cash. There is also word of an ad sales partnership, which could involve the “Like” buttons being used on Yahoo! pages.

But this report only claims the companies will cross-license “some key patents”, and that either company will need to pay to access others.

Facebook chief operating officer Sheryl Sandberg told ATD the deal, “encompasses licensing of a little more than half of Yahoo’s rich portfolio of digital patents and an agreement not to sue on the remaining ones, which Facebook can license or even buy in the future.”

It’s an unusual agreement – nearly every major company in Silicon Valley is involved in some sort of patent dispute. As gadgets become more complex, and each company has at least a few patents licensed to any one device or service, IP is also becoming increasingly seen as a weapon to gain leverage over competitors.

Last year, Google spent billions buying Motorola Mobility, in no small part because of its patent library.