Facebook and Yahoo! Let Bygones Be Bygones

Let bygones be bygones, right?

Ahead of Facebook's (NAS: FB) roller coaster of an IPO earlier this year, purple searcher Yahoo! (NAS: YHOO) hurled a patent assault against the social-networking kingpin. The timing of the suit was suspect, as Facebook was entering a quiet period and just generally had its hands full leading up to its offering, so patent litigation was the last thing it wanted to be dealing with.

Even Facebook was rather perplexed by the move, since it had considered the pair's relationship mostly copacetic up until that point, saying Yahoo! had "substantially benefited from its association with Facebook." It did the same thing to Google ahead of the now-dominant search engine's offering in 2004 and was able to extract some dollars and shares out of Big G back when it was Little G, totaling approximately $201 million.

The suit also proved to be a painful reminder to Facebook that it needed to beef up its patent portfolio for defense and offense, as it had also countersued Yahoo! It then dipped into tech's unofficial armory, buying roughly 750 patents from IBM (NYS: IBM) . A month later, Facebook then bought 650 more patents off business buddy Microsoft (NAS: MSFT) , which it in turn had just bought offAOL (NYS: AOL) .

According to All Things D, the two companies have now agreed to a truce and are settling the infringement lawsuit. Facebook and Yahoo! are now expanding their existing partnership, which will include joint ad sales and patent cross-licensing.

The suit was instigated by ex-CEO Scott Thompson, who has since stepped down because of the whole fudging-your-resume-to-become-the-CEO-of-a-multibillion-dollar-company thing. Interim CEO Ross Levinsohn, who is likely to soon drop the "interim" from his title, led the settlement talks with Facebook COO Sheryl Sandberg.

If the two companies hadn't settled, they would be looking at a long, drawn-out, and costly legal battle that would probably burn bridges, so the settlement will benefit both Facebook and Yahoo!, especially if they can turn it into top-line upside.

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At the time thisarticle was published Fool contributorEvan Niuholds no position in any company mentioned. Check out hisholdings and a short bio. The Motley Fool owns shares of Microsoft, IBM, Facebook, and Google.Motley Fool newsletter serviceshave recommended buying shares of Microsoft and Google, creating a synthetic long position in IBM, and creating a bull call spread position in Microsoft. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days. The Motley Fool has adisclosure policy.

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