The 8-K filed by Yahoo on the Microsoft deal has some interesting points. One angle looks a little squirrely; although it includes some limited patent cross-licensing between both parties (as long as they only use the patents for providing the services together), there’s also an optional provision for Microsoft to purchase an actual, normal, patent license from Yahoo for its patents. However, even if Microsoft decides to pay for this license, that license would terminate upon termination of the Search Agreement (i.e. the overall agreement). One can envision this happening either ten years from its commencement date, or if either of the parties repeatedly breaches the agreement in a material fashion.
A quick search of the U.S. Patent and Trademark Office’s Database, looking for “Yahoo!” in the Assignee name, shows 234 granted patents and 1116 patent applications. There’s usually some duplication between application records and patents in the database, but also the USPTO does not post an application for the first year – so it’s safe to say Yahoo has at least 234 issued patents and around 1,000 outstanding applications. They may have more if they have used subsidiary names for the Assignee (actually, I have occasionally run across a few under the names of companies they’ve acquired). Either way, that is a LOT of Intellectual Property. In fact, it’s so much IP it’s unlikely any one person at Yahoo or Microsoft can really understand it all.
But the agreement also requires Microsoft to hire at least 400 Yahoo employees. One would assume this includes most or all of Yahoo’s search experts – who are familiar with and filed most of these search patents; that’s presumably the point of this whole agreement, that Yahoo is giving up search to Microsoft and handling the advertising end for both parties, right?
So 400 people, who have probably filed most of these patents, will soon be moving into new roles at Microsoft – presumably to work on Bing itself . In fact, why else would you hire these people, if not to improve Bing? (Well, of course, other than to keep them from going, oh, I don’t know, somewhere else perhaps? ;-).
Engineers are problem-solvers by nature – when they attack a problem, they use whatever tools they are familiar with and have worked in the past; it’s very difficult to envision 400 people never ever ever using an idea out of a Yahoo patent when working on Bing code. The natural thing to expect would be for Yahoo’s technology to slowly, Borg-like, infuse itself into the core of Bing, just through the normal course of people contributing to projects, fixing things, making suggestions and improvements, and generally doing their jobs.
If this issue is not addressed, then eventually, 10 or so years down the road, Microsoft could be faced with operating a search engine which has portions based on Yahoo technology, without a license – clearly not a smart thing to bake into any agreement. This scenario would give Microsoft an extremely high incentive to renew the agreement in 10 years, or just finish the job and acquire the rest of Yahoo somewhere along the line.
However, this “Agreement” is really a binding letter agreement specifying that the parties will negotiate and execute the actual real agreements, which will reflect the terms in the letter; hopefully Microsoft will get this straightened out in negotiations over the real documents before the signing deadline of October 27. I would love to be a fly on that wall!