Internet icons settle dispute

SAN FRANCISCO -- Facebook Inc. and Yahoo Inc. have agreed to settle a patent dispute, averting a potentially lengthy battle over the technology running two of the Internet's most popular destinations.

The firms agreed Friday to license their patents to each other. They are also agreeing to an advertising alliance that expands their existing partnership.

The advertising alliance could help Yahoo recover some of the revenue that it has lost as marketers shift more of their spending to a larger and more engaged audience on Facebook's online social network.

Friday's settlement involves no exchange of money and comes after a months-long patent squabble between the two Internet powers.

The truce ends a conflict provoked by Scott Thompson, who was dumped from the job as Yahoo's chief executive officer two months ago after misinformation on his official biography raised questions about his integrity.

Under Mr. Thompson, Yahoo filed the patent lawsuit in March, wielding it as a weapon against a company that Mr. Thompson believed had been prospering from the ideas of its older rival. The complaint alleged that Facebook infringed on 10 Yahoo patents covering Internet advertising, privacy controls, and social networks. Yahoo added two more patents to the lawsuit later.

But Mr. Thompson's attack on Facebook quickly became a public-relations disaster. Much of the technology industry railed against Yahoo's tactics. Critics viewed the lawsuit as a financial shakedown.

When Yahoo replaced Mr. Thompson in May with interim CEO Ross Levinsohn, it opened the door to settling the dispute under a reshuffled board of directors. Six of Yahoo's 11 directors joined the board after Yahoo sued Facebook on March 12.

With the agreement, Yahoo and Facebook revert to the amicable relationship they had been fostering before the lawsuit. And it appears the antagonism is dissolving into a partnership that could benefit both.

Yahoo had been tying many of its services and content to Facebook before the lawsuit. Now the two firms plan to display ads on each other's sites, and Yahoo plans to feed even more of its coverage of major events to the social network.