Facebook and Yahoo Settle Patent DisputeFacebook and Yahoo announced Friday they have settled their major patent dispute. The settlement will result in an expanded relationship between the companies, including a new advertising partnership and an agreement to extend and expand their distribution arrangements.

The deal includes cross-licensing of the companies’ patent portfolios, as well as a joint effort to promote and distribute “premium media experiences” on both sites. Yahoo media event coverage will also be offered to Facebook users via social integrations, and Yahoo will be able to feature Like buttons on its display ads.

The Lawsuit -- A Recap

In March, Yahoo filed a major lawsuit against Facebook. The suit did nothing less than assert that Facebook’s core features were lifted from Yahoo’s protected technology, infringing ten patents. The suit contended that “Facebook’s entire social network model, which allows users to create profiles for and connect with, among other things, persons and businesses, is based on Yahoo’s patented social networking technology.”

The lawsuit asserted that the infringement affected Facebook’s News Feed, ads, and other key features, and it asked for triple damages and an end to Facebook’s methods that violated Yahoo’s patents. The lawsuit was filed during the period when Facebook was in its quiet period, prior to its IPO.

In response to the filing, Facebook had issued a statement expressing disappointment that “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.” It launched a counter-suit in April, contending that ten of its patents had been infringed by Yahoo.

Lawsuit Reaction

Yahoo’s aggressive lawsuit was met with many boos from observers in the technology community, in that it appeared to be an attempt to wring concessions and cash from Facebook just as it was going public. It was characterized by some observers as resembling the actions of a patent troll.

Serious discussions toward a settlement apparently began in earnest shortly after Yahoo COO Scott Thompson was removed by his board last month. Thompson had been the driving force behind the patent lawsuit, which he believed could result in a large payoff from Facebook.

In a statement accompanying the announcement of a settlement, Facebook COO Sheryl Sandberg noted that “Yahoo’s new leaders are driven by a renewed focus on innovation and providing great products to users.”

Prior to the filing of the patent lawsuit, the two companies had worked together on a number of fronts. For instance, Yahoo had integrated a Social Bar feature on 100 of its global properties, which helped the site achieve what it called “the largest active user base among all news sites that have integrated with Facebook’s Open Graph platform.”