The real reason no one wants the Yahoo patent suits against Facebook?

Posted on March 25, 2012

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Everyone knows about Yahoo’s patent suit against Facebook.

The conspiracy theory

In the Silicon Valley ecosystem, Facebook has far more to lose than Yahoo! has to gain. Line up the two sides fighting this battle – Facebook is NATO while Yahoo! has Sheriff Joe Arpaio. Hence the conspiracy theory —

Facebook has a $100 billion IPO in the works.  What if maybe, just maybe, Yahoo! is onto something here and things at Facebook aren’t what Wall Street and Silicon Valley would like it to be?  Facebook has a sorted history with regard to IP disputes (see: Winklevoss Twins). More recently, there’s media pressure with questions like – “Is Pinterest is the next Facebook?”. Maybe Wall Street and Silicon Valley already know that there’s something to this and they need to get this IPO out the door before its too late.

Meanwhile, Yahoo! has been a firestorm of criticism in recent years – turning down Microsoft’s $31/share offer, the hiring and firing Carol Bartz, Jerry Yang’s resignation, an inability to develop any sort of notable innovative products in the last ten year. Everyone hates them because they suck. Wall Street’s been looking to bury Yahoo! for years.

Fred Wilson comments that ignoring patent enforcement has long been part of a gentlemen’s agreement among tech companies. Is there a dirty little secret in Silicon Valley that patents and IP are never really enforced? Is the cover on a witch’s brew that the VCs, entrepreneurs, and investment banks want to keep firmly atop the cauldron? A long public dispute not only damages the upcoming Facebook IPO, but will then opens the lid to technology companies suing and counter-suing each other instead of focusing on innovation and The Next Big Thing.

Just one uninformed man’s thoughts… Conspiracy theories aside, here are a couple of pro/con arguments grounded in actual logic and research:

Why Yahoo! should sue

Why they shouldn’t

  • IPR protection may not matter as much as you think.  See “Of Patents and Property” by CATO’s James Bessen and Michael J. Meurer.  They concluded:

With the cross-country studies in particular, the quality of general property rights institutions has a substantial direct effect on economic growth. Using the same methodology and in the same studies, intellectual property rights have at best only a weak and indirect effect on economic growth.

In other words, Yahoo! will spend the money and time establishing IP ownership, but that alone will not help them grow out of their innovation and finance hole.

So there are my three sides to the argument.  Pick one, or two, or all three (like me).  I’m frankly indifferent to the whole thing.  If they sue, they’ll have one of four outcomes:

  1. Sue, win, and succeed as a result
  2. Sue, win, and continue sucking
  3. Sue, lose, and continue sucking
  4. Sue, lose, and find some alternate path to growth.

Doesn’t matter to me.  I’ve already moved my personal email to Gmail, moving off of Flickr, and find Yahoo!Finance as one of their only useful products.