A dispute between internet giants Yahoo! and Facebook in relation to intellectual property rights may be on the horizon.

Yahoo! has alleged that the world’s biggest social network has infringed its patents in the design of certain features of its website. It is the first time social media has been subject to such a dispute, which has become common in the technology sector, particularly in relation to smartphones and tablets.

Yahoo! owns more than 1,000 U.S Registered patents. By contrast, at the end of 2011, Facebook owned only 56 as its patent protection has been unable to keep pace with the rapid growth of the network. This is out of step with much of the sector, as companies are seeking to acquire as many IP rights as possible in order to protect their market positions. For example, Google’s $12.5 billion acquisition of Motorola Mobility Inc was made largely in order to gain the rights to utilise 6,189 patents.

Whilst the particular patents in question have yet to be specified, the allegation is believed to relate to between 10 and 20 patents covering internet services such as online advertising, instant messaging, news feed and privacy controls.

Yahoo! and Facebook have already commenced talks regarding a licence of the relevant technologies. This is an approach Yahoo! has taken with various other companies in the past. However, it seems that if an agreement cannot be reached, Yahoo! is willing to instigate a court action in order to protect its shareholders, employees and other stakeholders. 

Facebook has yet to make its position clear, but it may be eager to avoid another battle in the courts following the high profile litigation regarding its creation in 2004. Yahoo! may also be keen to avoid tainting the relationship, as it is has increased its exposure and visitor base by linking many of its services to Facebook.

The legitimacy of the claims made by Yahoo! is still unclear, but the potential value of a successful claim could be substantial as Facebook aim to complete an initial public offering by Spring 2012, which could value the social network at up to $100 billion. Indeed, it has been suggested this may be the reason for the timing of the claim and one analyst has suggested that Yahoo! shouldn’t accept any less than $3 billion to settle the dispute.

Whilst the outcome is uncertain, investors and users alike will take a keen interest in how the situation develops.

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