Facebook: Could shut down if we lose lawsuits

Posted at 7:41 PM, Mar 13, 2012
and last updated 2012-03-13 19:42:26-04

Facebook has warned it may be forced to shut down if it loses a series of lawsuits.

The social networking site broke the news in a document prepared for potential investors.

It said the various legal actions, including pending legal action from Yahoo, could have a significant impact on the financial condition of the company.

Analysts say it's mostly just an exploration of the 'worst-case scenarios' for investors and a way for Facebook to cover its back.

NEW YORK (CNNMoney) -- Yahoo filed a lawsuit against Facebook Monday, alleging that the social media giant infringed on 10 of its patents related to advertising, privacy, customization, messaging and social networking.

The launch of the full-on patent battle follows last month's media reports of Yahoo's attempt to force Facebook to pay licensing fees for 10-20 patents.

"Yahoo has invested substantial resources in research and development through the years, which has resulted in numerous patented innovations of technology that other companies have licensed," said Yahoo in an e-mailed statement Monday. "Unfortunately, the matter with Facebook remains unresolved and we are compelled to seek redress in federal court. We are confident that we will prevail."

According to the lawsuit, which was filed in federal court in San Jose, Calif., Yahoo is hoping that Facebook will be ordered to pay "all damages caused to Yahoo by reason of Facebook's infringement."

Facebook, which said it learned of Yahoo's lawsuit at the same time as the media, said it will defend itself "vigorously against these puzzling actions."

"We're disappointed Yahoo, a longtime business partner of Facebook and a company that has substantially benefited from its association with Facebook, has decided to resort to litigation," a Facebook spokesperson added.

Yahoo's decision to wage a patent war with Facebook is the first big step taken by new CEO Scott Thompson, who took the helm in January following a four-month search for a replacement for Carol Bartz.

Meanwhile, for Facebook, the lawsuit comes at delicate time, as the company prepares to go public. Last month, Facebook filed for a $5 billion initial public offering.

Shares of Yahoo rose 0.6% in after-hours trading.

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