Overview
On July 6,
2012 Yahoo! and Facebook announced a strategic alliance that will start a new
advertising partnership, extend and expand distribution arrangements, and
settle all pending patent claims between the companies (Mercury News). By forming a strategic alliance, the two
companies have agreed to license their patents to each other, and expand on
their advertising and content-sharing partnership. Yahoo! had initially sued Facebook in March,
claiming that Facebook had violated 10 of Yahoo!’s technology patents. Many critics and analysts viewed the lawsuit
as a desperate ploy to cash in on a large payout. However, Facebook countersued Yahoo!, in
April claiming that Yahoo! had violated some of its own patents, some of which
Facebook purchased from IBM and Microsoft.
Yahoo!’s lawsuit was filed by CEO Scott Thompson just 2 months before
Facebook was set to go public, but Thompson resigned shortly after the lawsuit
once it had been discovered that he had forged his academic credentials. The interim CEO, Ross Levinsohn, reached out
to Facebook CEO Sheryl Sandberg to come to some sort of agreement. The truce that was reached July 6th
forbids the two companies from suing each other over intellectual properties,
and doesn’t require any form of cash payout from either side (Boston Globe). Although there was no payout, Facebook spent $550
million to buy and license patents from Microsoft and an estimated $83 million
for the patents bought from IBM. The end
of the dispute will allow the companies to continue working together to cover
large media events, and hopefully generate larger advertising revenues. Yahoo! had already been allowing
much if it’s content and stories to be shared to Facebook before the lawsuit
was filed. Following the agreement, the two companies plan to display more ads
on one another's sites (CNBC).
Managerial
Implications
The original
lawsuit filed by Yahoo! has been criticized and viewed as frivolous and
unwarranted. In just 5 months since it
has been filed, it has cost Yahoo! and Facebook millions of dollars in legal
fees, patent licensing and purchasing, and public relations. The two companies already had a working
relationship in which they shared advertising and content with one another, but
the previous agreement was put in serious jeopardy with the lawsuit. However, the entire situation could have been
avoided with a better business relationship.
If the two companies had used better communication, flow of information,
and technology sharing the lawsuits could have been avoided completely. The lawsuits were also very costly in terms
of time, which could have been better spent working together on the issues they
recently resolved. Although the
agreement saves the companies time and money in the future, it cannot replace
the time, money, and manpower spent resolving these issues created by a poor
working relationship.
Works Cited
“Announcement: Yahoo and Facebook announce 'strategic alliance' to settle patent lawsuits.”
Mercury
News. San Jose Mercury News, 6 July
2012. Web. 12 July 2012.
“Yahoo, Facebook settle patent dispute, expand
alliance.” The Boston Globe. NY Times,
7 July
2012. Web.
12 July 2012.
“Yahoo, Facebook strike
patent truce, ad alliance.” CNBC.
The Associated Press, 6 July 2012.
Web. 11 July 2012.
It's good that Facebook and Yahoo decided to quit bickering and play nice and learn to share again. What a waste of time and money! It just underscores the importance of communication and trust in strategic alliances. The two CEOs showed great leadership in working together toward a solution that benefited both companies. This should lead both companies to have potentially better profits and competitive advantage as long as they keep the information flow and trust going.
ReplyDeleteYou're exactly right Ehric. A lot of people are placing all the blame on former Yahoo! CEO Scott Thompson for filing the lawsuit, but the real problem was really the lack of trust and communication in the partnership. I think the resolution will lead to better business opportunities for both companies as you said, but the time and money lost was huge for both companies.
ReplyDeleteSome of that patents game does seem ridiculous. Not saying it's the case here, but it's as if some companies file for patents and plan to profit off of the lawsuits. It does get quite frivolous.
ReplyDeleteI agree that it's good the companies were able to start cooperating again and the relationship wasn't ruined.
I agree with you about the lawsuits over patents. It also seems like a lot of companies are suing other companies over patents that are far outdated, because someone has created a patent that is too closely related to an already existing patent. However, in this particular case, both companies didn't do either a favor by suing and counter-suing. They were already in business together, and the resolution they reached should have been accomplished long before lawyers were brought in.
ReplyDeleteThis goes to show that many companies do not put enough thought into the terms of agreement when entering a business relationship.
ReplyDelete