Yahoo Implies It Can Still Shake Down Facebook For Patent Money. Bloody Unlikely

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[Update 7/22/2012 - On Facebook's first earnings call in response to a question about Facebook's deal with Yahoo, COO Sheryl Sandberg confirmed "The first part was a cross license of all the patents". This confirms my report in this article that Facebook and Yahoo did a full portfolio cross license, not that "the deal encompasses licensing of a little more than half of Yahoo’s rich portfolio of digital patents" as reported elsewhere.]

Yahoo and Facebook signed a contract today that says they cannot sue each other over patents. Yet Yahoo may be trying to convince investors that Facebook would still pay to buy or license some Yahoo intellectual property. But according to a source familiar with the exact wording of the Yahoo-Facebook contract, the two companies have rights to each other’s entire patent portfolios, so Yahoo would have no leverage to extort money or value from Facebook.

I smell something fishy. Let’s investigate.

Facebook’s press release states the agreement does “include a patent portfolio cross-license”, and my source says the word ‘portfolio’ means each company’s entire patent repertoire.

Kara Swisher had a scoop that the agreement was signed. Yet in a follow-up interview about details, “the pair” of Yahoo interim CEO Ross Levinsohn and Facebook COO Sheryl Sandberg apparently told Swisher that “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.” Swisher tells me this information is attributed to “both companies”.

So the question is, is this case shut tight and Yahoo can’t make money off of Facebook via patents? Or is there still potential for Yahoo to salvage some direct compensation beyond the value of a deepened partnership?

The contract’s details are confidential, so we may never get a definitive answer on this [Update: Until Facebook's earnings call where Sandberg confirmed the deal is for all the patents, not half]. But here’s what I believe based on my sources and the press release:

What Swisher was told and published would cause people to believe Yahoo might still make money directly from its patent assault on Facebook. The same assault that Swisher said former CEO Scott Thompson promised Yahoo’s directors would earn it a huge settlement pay-out from Facebook. The same assault that deeply hurt Yahoo’s reputation by making it look like a troll fighting against innovation.

The only chance for Yahoo would be if Facebook eventually wanted to outright buy its patents to assert them against other companies. But Facebook has said and shown it’s not interested in patent aggression. Plus with stockpiles already purchased from IBM and AOL/Microsoft, there would be little need to buy or license IP it already has rights to.

Seems like Yahoo has a lot to gain by somehow painting today’s agreement as leaving space for it to still recoup some of its losses from fighting the case. But that gain comes by misleading investors into thinking patent-based monetary gains for Yahoo from Facebook are still on the horizon. And while Facebook is trying to claw its way back to its IPO price, now it has investors worrying there could be more Yahoo patent woes.

Unfortunately for Yahoo, I don’t think that’s true and I see nothing on the patent horizon but the open sea its sinking in. Even as Facebook threw it a life preserver of an ad sales partnership, Yahoo is still trying to act macho. This was a chance for Yahoo to start over, but now I’m thinking old habits die hard, and the deceitful ghost of Scott Thompson lingers.

[Image Credit: Zazzle]