Facebook Continues to Get Sued
Arthur is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
What is most fascinating about the story of Facebook? Is it the fact that it was started by a lone college student out of his Harvard dorm room, the rapid story of the company’s success as it revolutionized social media and how the internet is used, or the high profile lawsuits against its founder which was the basis of the hit film The Social Network?
Legal Concerns
As Facebook gets bigger and bigger, increasing its domestic and international membership base the story of how the Winkelvoss brothers sued Mark Zuckerberg and settled for $65 million will forever remain a thorn in the social networks growth story. While the Winklevoss trial will most likely remain the highest profile case in Facebook’s history, the company continues to face a wave of legal allegations.
In Facebook’s prospectus, the company notes several legal risks which could potentially be detrimental to its operations:
-Our business is subject to complex and evolving U.S. and foreign laws and regulations regarding privacy, data protection, and other matters. Many of these laws and regulations are subject to change and uncertain interpretation, and could harm our business.
-We are currently, and expect to be in the future, party to patent lawsuits and other intellectual property rights claims that are expensive and time consuming, and, if resolved adversely, could have a significant impact on our business, financial condition, or results of operations.
-We expect the number of patent and other intellectual property claims against us to grow.
Facebook has already been sued numerous times in several countries spanning from the United States to Germany regarding its privacy settings, tracking the activities of logged out users and the distribution of personal information. Now, Facebook has once again emerged into the legal spotlight as Yahoo (NASDAQ: YHOO) and India press charges against the social media giant, shortly before it goes public.
Yahoo
After failing to resolve the matter behind closed doors, Yahoo is taking Facebook to court for 10 patent violations. Some of these patents include technologies which Yahoo had rights to, but their products did not find the same level of success as similar features found on Facebook. For example, Facebook’s personalized newsfeed may be in violation of Yahoo’s patent of providing audiences with a customized data feed. Other alleged patent violations are focused on Facebook’s technology concerning its messaging and advertising systems. Despite that Facebook’s content sharing feature has been successful for Yahoo’s content distribution business, management pushed forward with the case.
India
Another major lawsuit in which Facebook once again finds itself as the defendant is a pending case in which India’s Central Government wants search engines and social networking websites to censor content which may be viewed as objectionable. Google (NASDAQ: GOOG) and Microsoft (NASDAQ: MSFT) also find themselves among the list of 20 companies currently under investigation for failing to adequately monitor the content of their search engines. The strict regulatory environment in places like India and other emerging economies makes it difficult for North American based search engines and social media platforms to gain the same level of acceptance as that attained within their domestic markets.
Conclusion
Controversial patent lawsuits within the social media space may eventually produce similar detrimental effects as the ongoing patent wars among cell phone hardware and software manufacturers who spend billions of dollars to buy an arsenal of patents for the sole purpose of deterrence. Furthermore, burdensome regulation in restricted economies may hinder Facebook from reaching its level of desired international scale as local competitors which strictly adhere to restrictive regulatory practices become endorsed by governments. Baidu (NASDAQ: BIDU), for example, gained the top spot search engine spot within China’s market because Google refused to play by the government’s rules.
Motley Fool newsletter services recommend Baidu, Google, Microsoft and Yahoo!. The Motley Fool owns shares of Google, Microsoft and Yahoo!. apinkasovitch has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
