Update: Google, Yahoo reach licensing deal

Google Inc. will license technology patented by Yahoo Inc. subsidiary Overture Services in one of two dispute settlements that the Internet search giants announced on Monday.

The license will cover U.S. Patent No. 6,269,361, entitled “System and method for influencing a position on a search result list generated by a computer network search engine,” and related patents, according to a statement by the companies. For its part, Yahoo will dismiss a patent lawsuit against Mountain View, California-based Google, the statement said. Overture, which was acquired by Yahoo last year, sued Google in April 2002.

In addition, the companies resolved a dispute over a stock warrant connected to a services agreement in 2000. Google issued about 1.2 million shares to Yahoo in June 2003, but Yahoo had said it was entitled to more shares, according to a Google filing to the U.S. Securities and Exchange Commission (SEC) on Monday.

The settlement is good news for Google, which should be looking to resolve any lingering legal issues before its proposed initial public offering (IPO), analysts said. For Yahoo, it could strengthen the company’s hand if it pursues patent infringement claims against other companies, according to Nate Elliott, an analyst at Jupiter Research Inc., in New York.

As part of the settlement of the warrant dispute and patent suit and in payment for the license, Google issued 2.7 million shares of its Class A stock to Sunnyvale, California-based Yahoo.

Representatives of both companies said they were pleased with the terms of the agreement.

Overture has granted Google a fully paid, perpetual license to its technology, according to Google’s SEC filing. In connection with the settlement, Google will incur a non-cash charge in the third quarter, which ends Sept. 30, the filing said. Using the midpoint of the price range of its proposed initial public offering (IPO), Google estimated the charge at US$260 million to $290 million. However, there will also be a related tax benefit in the quarter, estimated at $100 million to $115 million.

Google will use the actual IPO price to determine the size of the charge. It expects the charge to send the company into a net loss for the quarter, according to the filing. Google did not estimate the size of that loss.

With the IPO brewing, the company should be trying to clear up any uncertainties it can, Jupiter’s Elliott said.

“It would seem to be purely positive for Google once they get over the idea of giving away a lot of shares,” Elliott said.

Gartner Inc. analyst Allen Weiner took the same view.

“Any investor who’s a serious investor looks to see what kind of legal issues are outstanding. Those are major issues,” he said.

The licensing deal comes as the major search providers are moving away from using third-party technology in their services, Weiner said. Because they want to use search as a critical part of a larger set of offerings, such as music services, they are developing their own technologies. It would be time-consuming and expensive to integrate another company’s technology into these other offerings, he said.

“The only way you’re going to create the ultimate integrated tool is to build it yourself,” Weiner said.

When it sued Google in 2002, Overture said the company was infringing on a patent for its pay-for-performance service, which let companies bid for placement in search results based on relevant keywords. Advertisers paid Overture to drive traffic to their sites via search engines. In a response then, Google denied the patent-infringement charge.