Facebook Warns Investors of Unfavorable Outcome From Yahoo Patent Battle: Why?

It's not easy being an Internet business giant that everybody seems to want a piece of. Facebook found this out the hard way, as the world's No.1 social networking company warned away would-be investors, pending the outcome of a court case filed against it by Internet pioneer Yahoo this March.

In an updated filing with the U.S. Security and Exchange Commission, Facebook on Wednesday said prospective investors are being cautioned to expect possible negative consequences of the Yahoo lawsuit filed on March 12 in Los Angeles, alleging that Facebook had infringed on 10 of its patents in areas that included messaging, advertising and privacy.

The lawsuit claimed that Facebook's growth to more than 800 million users was based on its alleged use of Yahoo's patented technology.

Yahoo had asked the U.S. District Court in California to order a halt to the social networking site's alleged patent infringement activities.

Facebook said it has not yet filed an answer or asserted any counterclaim, simply stating that it intends to vigorously defend itself, even as it expressed disappointment at the Yahoo action.

Industry analysts had earlier noted that the Yahoo litigation action was a new development, pointing out that past patent infringement cases usually involved mostly smartphone and tablet computer makers and developers and not social media networks.

In its warning, Facebook clearly stated that an unfavorable outcome of the litigation could have serious effects on its business, financial condition and overall operations.

It emphasized that as the case with Yahoo is at this very early stage, it remains uncertain over the outcome of the case, particularly its liabilities and the feared impact on its investment stability status.

The Yahoo lawsuit came about one month after Facebook applied with authorities to go public on Wall Street with an estimated company value of $100 billion.

The warning from Facebook came even as the spokesmen for Yahoo maintained to the news media that it expects Yahoo to ultimately prevail.

(reported by Laurentiu Stan, edited by Surojit Chatterjee)