Exposure to intellectual property (IP) risks has been highlighted as a significant potential threat to Facebook, in the company’s application to go public. Filed with the US Securities and Exchange Commission (SEC) on 1 February as an initial part of the process to achieve flotation, Facebook’s document outlines risk factors in a range of areas that could affect the company’s future performance – a requirement to demonstrate transparency in the market. Its lengthy notes on IP risks offer a fascinating insight into the challenges that face innovation-rich technology companies with large ambitions.

Facebook stressed that it regularly contributes software source code under open-source licences, enabling other developers working in the open-source framework to include them in their own software creations. ‘For example,’ it said, ‘we have contributed certain specifications and designs related to our data-centre equipment to the Open Compute Project Foundation: a non-profit entity that shares and develops such information with the technology community, under the Open Web Foundation License.’

However, the company added, proprietary holdings occupy a major part of its ongoing activities: ‘We are currently, and expect to be in the future, party to patent lawsuits and other IP Rights claims that are expensive and time consuming, and, if resolved adversely, could have a significant impact on our business, financial condition, or results of operations.’

In Facebook’s assessment, its initial public offering (IPO), as filed at the SEC and already greeted with widespread publicity, may increase the likelihood of future litigation across the IP landscape. ‘Various “non-practising entities” that own patents and other IP Rights often attempt to aggressively assert their rights in order to extract value from technology companies,’ Facebook said. ‘We presently are involved in many such lawsuits, and as we face increasing competition and gain an increasingly high profile – including in connection with our initial public offering (IPO) – we expect the number of patent and other IP claims against us to grow. In addition, from time to time we may introduce new products, including in areas where we currently do not compete, which could increase our exposure to patent and other intellectual property claims from competitors and non-practising entities.’

Facebook also pointed out territorial challenges that may affect its post-flotation plans: ‘Effective IP protection may not be available in every country in which we operate or intend to operate our business. In any or all of these cases, we may be required to expend significant time and expense in order to prevent infringement or to enforce our rights.’

Launched by Mark Zuckerberg in 2004, Facebook has been tipped for make up to $100bn as a result of the flotation.


For previous NewLegal Review articles about Facebook, click here, here and here

To read Facebook’s SEC flotation filing in full, click here