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Will Yahoo! Lawsuit Hurt Facebook's IPO?


“Facebook will need to acknowledge the innovation that Yahoo! has done and probably pay them some licensing fees,” says analyst Trip Chowdhry.

Chowdhry, the Managing Director of Equity Research at Global Equities Research, told Benzinga that the Yahoo! (NASDAQ: YHOO) lawsuit should not hurt Facebook's IPO. But he is pleased to see that Yahoo! is finally taking the necessary actions to protect its intellectual property.

“We are entering a place where you have to have protected innovation,” said Chowdhry. “So I think Yahoo! is doing the right thing. The company has to protect its intellectual [property]. If you create something, it's very easy for [someone else] to copy. Think about it – Yahoo! is a pioneer of intellect. These people have defined the industry, and the latecomers like Facebook come and copy 10 years of innovation at Yahoo! and take a free ride. It's just not right.”

Chowdhry compared the Yahoo!/Facebook battle to the way Apple's (NASDAQ: AAPL) innovations were copied two decades ago.

“Apple got crushed in the ‘90s,” said Chowdhry. “Why? Because [others] copied them. They have learned their lesson, and even on the slightest thing that someone may be infringing, Apple goes and defends itself. Think about it. It is so easy today for anybody to copy Apple. But Apple goes after them.”

While HTC is highly regarded as the chief copycat, Chowdhry pointed to another firm instead. “Think about Samsung,” he said. “Samsung copied the form factor of Apple. Where were they before Apple came out with the iPad? Nowhere. So I think what Yahoo! is doing is right and they should probably be going after all the new little startups [who are copying Yahoo!'s patents]. They should not let imitations be a guise of innovation.”

When asked if Yahoo! made a mistake in waiting so long to file the suit, Chowdhry pointed to the company's corporate past. “I think that's the reason the old CEO was fired and the old board was thrown [out],” said Chowdhry. “Ideally, every company should be like Apple. At the slightest hint of any copycat or any infringement, they should go after them. Apple doesn't wait even a microsecond. I think that's the same thing Yahoo! should have done. If they had, Facebook wouldn't be what it is today. So I think the problem was with the old management. But I think this is a positive for the company [and] for Yahoo!'s new CEO.”

Further, Chowdhry questioned: “In technology, what is the key thing driving companies to success?”

“It is only intellectual property and innovation,” he answered. “If you can't defend innovation, if you can't protect innovation, you are exposing yourself to copycats.”

Chowdhry believes that if Apple wasn't so forceful, “there would be many copycats of the iPhone, iPad, and Mac.”

“But Apple is very forceful,” he said. “They don't want those products to be shipped. They go after them.”

Unfortunately, no single company can stop every copycat from emerging. “Many Chinese companies are exact copies of U.S. companies,” said Chowdhry. “Youku Inc. (NYSE: YOKU) is an imitation of YouTube. It looks the same! What I'm saying is, in this Internet era, copying and imitating are so easy. Many of the second and third movers think it's their birthright – they can copy anything because it's the Internet. If you ask me, the very first day Facebook went live, they should have [taken action]. And that's why Yahoo! is not a leader; because they let people use their R&D efforts for free without paying them.”

Chowdhry feels that Yahoo!'s patent litigation should not end with the lawsuit against Facebook. “They should go against each and every company, big or small,” he said. “[What others did to Yahoo!] is what Microsoft (NASDAQ: MSFT) did. Do you think Microsoft was an innovator? No. What is Windows 8? It is a copy of Mac. And that has always been the case.”

Microsoft isn't the only tech industry behemoth that's been accused of being a copycat, however. Zynga (NASDAQ: ZNGA) has had its share of complaints as well.

This made me wonder: why isn't Zynga being sued over copyright infringement? Chowdhry thinks it's because the companies that are being copied are “ignorant and foolish.”

“They don't value innovation,” he said. “If you are a technology company, and if you think your [IP] is your asset, and you're not defending that, how stupid can the company be? I think it's foolishness on their part.”

“The first and foremost strategy [should be] protecting your innovation,” Chowdhry insisted. “If you can't – even before you put the product out – protect it, you are dead on arrival. And that's the reason the companies [Zynga copied] have done nothing.”

I asked if those firms should sue Zynga. “Exactly!” Chowdhry replied. “At the heart of every technology is innovation, and innovation should not be allowed to be copied because it hinders further innovation.”

Follow me @LouisBedigian

Posted-In: Apple FacebookAnalyst Color News Legal IPOs Analyst Ratings Tech Best of Benzinga


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