March 24, 2023

DealBook: Yahoo and Facebook Settle Patent Lawsuits

The headquarters for Yahoo in Sunnyvale, Calif., and Facebook in Menlo Park, Calif.Ryan Anson/Bloomberg News and Jim Wilson/The New York TimesThe headquarters for Yahoo in Sunnyvale, Calif., and Facebook in Menlo Park, Calif.

Yahoo and Facebook agreed on Friday to settle a legal fight over their patent holdings, ending what was shaping up to be one of the nastier court battles in Silicon Valley in recent memory.

Under the terms of the pact, the two companies will expand an existing partnership, including a deeper integration of Facebook’s tools into Yahoo’s content pages.

The two companies have also agreed to cross-license all their patent holdings, which would keep either side from suing the other over intellectual property issues in the future, a person close to one of the companies said.

What the agreement does not include is any sort of cash payout by Facebook, a win for the company.

The pact is intended to heal a rift between two companies that less than a year ago had begun an extensive collaboration. As part of the agreement, Yahoo and Facebook have agreed to work together to promote big events, hoping to draw increased advertising revenue.

“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,” Ross B. Levinsohn, Yahoo’s interim chief executive, 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.”

Patents have increasingly become a focal point as companies like Apple and Eastman Kodak have turned to suing rivals over intellectual property claims. But such moves are often frowned upon within Silicon Valley. Yahoo took many by surprise earlier this year when it threatened to sue Facebook, claiming that it had violated some of its oldest Web technologies. Yahoo filed suit in March, citing 10 patents in particular.

Several technology commentators criticized Yahoo as a “patent troll” that was simply seeking a big payday.

Analysts also expressed surprise, given that Yahoo’s use of Facebook tools appeared to have improved its own business. Integrating Facebook’s news activity feature into Yahoo pages, for instance, tripled Yahoo’s traffic from Facebook between September and December of 2011.

At the time, Yahoo argued that it was simply trying to protect its intellectual property.

Facebook countersued in April, claiming that Yahoo had breached some of its own patents, some of which the company had purchased.

Yahoo’s original legal campaign was masterminded by Scott Thompson, then the company’s chief executive. The lawsuit was filed at a particularly delicate time for Facebook: about two months before the company was set to go public.

In 2003, Yahoo acquired Overture, a search advertising technology company that had sued Google over patent issues. Yahoo settled the fight the next year, collecting 2.7 million shares from Google before the search giant went public.

But Facebook was prepared to wage a long and costly fight to protect itself against Yahoo’s lawsuit, people close to the company have said.

Settlement talks began shortly after the resignation of Mr. Thompson in May, following the revelation that his academic credentials had been misstated. Soon after becoming interim chief executive, Mr. Levinsohn contacted Sheryl Sandberg, Facebook’s chief operating officer, to begin negotiating a truce, according to people briefed on the matter.

Among Mr. Levinsohn’s concerns was that the patent fight was a distraction from the company’s focus on turning itself around, these people said.

The two sides spent several weeks working on the outlines of a potential agreement, including at the sidelines of the AllThingsD conference in May, these people said.

On Friday, Yahoo’s board — including directors who previously supported the company’s lawsuit — unanimously approved the settlement, one of the people briefed on the matter said.

“I’m pleased that we were able to resolve this in a positive manner and look forward to partnering closely with Ross and the leadership at Yahoo,” Ms. Sandberg said in a statement.

“Together, we can provide users with engaging social experiences while creating value for marketers.”

Shares of Yahoo dipped slightly on Friday, to $15.78, while those of Facebook rose nearly 1 percent, to $31.73.

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Flouting the Law, Pastors Will Take On Politics

The sermons, on what is called Pulpit Freedom Sunday, essentially represent a form of biblical bait, an effort by some churches to goad the Internal Revenue Service into court battles over the divide between religion and politics.

The Alliance Defense Fund, a nonprofit legal defense group whose founders include James Dobson, the founder of Focus on the Family, sponsors the annual event, which started with 33 pastors in 2008. This year, Glenn Beck has been promoting it, calling for 1,000 religious leaders to sign on and generating additional interest at the beginning of a presidential election cycle.

“There should be no government intrusion in the pulpit,” said the Rev. James Garlow, senior pastor at Skyline Church in La Mesa, Calif., who led preachers in the battle to pass California’s Proposition 8, which banned same-sex marriage. “The freedom of speech and the freedom of religion promised under the First Amendment means pastors have full authority to say what they want to say.”

Mr. Garlow said he planned to inveigh against same-sex marriage, abortion and other touchstone issues that social conservatives oppose, and some ministers may be ready to encourage parishioners to vote only for those candidates who adhere to the same views or values.

“I tell them that as followers of Christ, you wouldn’t vote for someone who was against what God said in his word,” Mr. Garlow said. “I will,  in effect, oppose several candidates and — de facto — endorse others.”

Two Republican candidates in particular, Gov. Rick Perry of Texas and Representative Michele Bachmann of Minnesota, would presumably benefit from some pulpit politics on Sunday, since they have been courting Christian conservatives this year.

Participating ministers plan to send tapes of their sermons to the I.R.S., effectively providing the agency with evidence it could use to take them to court.

But if history is any indication, the I.R.S. may continue to steer clear of the taunts.

“It’s frustrating,” said Erik Stanley, senior legal counsel at Alliance Defense. “The law is on the books but they don’t enforce it, leaving churches in limbo.”

Supporters of the law are equally vexed by the tax agency’s perceived inaction. “We have grave concerns over the current inability of the I.R.S. to enforce the federal tax laws applicable to churches,” a group of 13 ministers in Ohio wrote in a letter to the Treasury secretary, Timothy F. Geithner, in July.

Marcus Owens, the lawyer representing the Ohio ministers, warned that the I.R.S.’s failure to pursue churches for politicking violations would encourage more donations to support their efforts, taking further advantage of the new leeway given to advocacy groups under the Supreme Court’s decision last year in the Citizens United case.

Lois G. Lerner, director of the agency’s Exempt Organizations Division, said in an e-mail that “education has been and remains the first goal of the I.R.S.’s program on political activity by tax-exempt organizations.” The agency has posted “guidance” on what churches can and cannot do on its Web site.

The agency says it has continued to do audits of some churches, but those are not disclosed. Mr. Stanley, Mr. Owens and other lawyers say they are virtually certain it has no continuing audits of church political activity, an issue that has been a source of contention in recent elections.

The alliance and many other advocates regard a 1954 law prohibiting churches and their leaders from engaging in political campaigning as a violation of the First Amendment and wish to see the issue played out in court. The organization points to the rich tradition of political activism by churches in some of the nation’s most controversial battles, including the pre-Revolutionary war opposition to taxation by the British, slavery and child labor.

The legislation, sponsored by Lyndon Baines Johnson, then a senator, muzzled all charities in regards to partisan politics, and its impact on churches may have been an unintended consequence. At the time, he was locked in a battle with two nonprofit groups that were loudly calling him a closet communist.

Thirty years later, a group of senators led by Charles E. Grassley, Republican of Iowa, passed legislation to try to rein in the agency a bit in doing some audits. While audits of churches continued over the years, they appeared to have slowed down considerably after a judge rebuffed the agency’s actions in a case involving the Living Word Christian Center and a supposed endorsement of Ms. Bachmann in 2007. The I.R.S. had eliminated positions through a reorganization, and therefore, according to the judge, had not followed the law when determining who could authorize such audits.

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