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Facebook and Yahoo settle patent suit, forge partnership

In this May 20, 2012 file photo, a Yahoo sign stands outside the company's offices in Santa Clara, Calif.

Paul Sakuma/AP

Facebook Inc. and Yahoo Inc. agreed to forge a broad Internet advertising and licensing partnership on Friday, laying to rest their duelling patent lawsuits.

The pact settles accusations of technology patent infringement that began under the stewardship of ex-Yahoo chief executive officer Scott Thompson, ousted after a scandal erupted over inaccuracies in his resume. Sources tell Reuters interim CEO Ross Levinsohn is now the front runner for the top job.

Facebook's and Yahoo's strategic deal – which expands an existing multi-year tie-up that involved mainly allowing Facebook users to share Yahoo content – encompasses cross-licensing of patents and collaboration on advertising offerings during major media events such as the Olympics or annual Super Bowl.

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"I'm pleased that we were able to resolve this in a positive manner and look forward to partnering closely with Ross and the leadership at Yahoo," Sheryl Sandberg, Facebook's Chief Operating Officer and newest board member, said in a statement.

Yahoo, the once iconic Internet company, has struggled to find its footing in a digital world dominated by the likes of Apple Inc., Google Inc., Facebook, and Twitter.

The company's leadership has been in a state of upheaval since turning down Microsoft's $44-billion takeover offer in 2008, plowing through four chief executives in as many years. The company would not say when a final decision on a permanent CEO will be made.

Yahoo's lawsuit had invited some criticism that it was trying to wring cash out of a company about to go public in Silicon Valley's largest coming-out party.

It sued Facebook in March, claiming the No. 1 social networking company infringed 10 patents including several that cover online advertising technology. In its lawsuit, the company said Facebook was considered "one of the worst performing sites for advertising" prior to adopting Yahoo's ideas.

Facebook, which went public in May, filed a countersuit of its own a month later and called Yahoo short-sighted for its decision to prioritize "litigation over innovation."

Facebook has been beefing up its patents arsenal. In April, it announced to deal to pay Microsoft Corp. $550-million for hundreds of patents that originated with AOL.

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