In 2003, Yahoo! paid $1.5 billion for Overture Serivces Inc. and $235 million for Inktomi.  At the time, many described both acquisitions as leaving Yahoo! the owner of a “treasure chest” of patents.  At the time, the most valuable patent was the one for pay-per-click advertising filed by GoTo.com, then owned by Overture.

If you recall, Overture was one of the first large West Coast companies that decided to use patents offensively, instead of (as was common at the time) for nuclear detente purposes.  Overture began aggressively suing Google for violating their GoTo.com patent with the AdWords model (U.S. PatentNo.6269361 aka the ’361).  Yahoo! continued with the litigation against Google and — for a brief moment — it appeared that Yahoo! might hold up Google’s 2004 IPO.

Three weeks before the Google IPO, the two parties announced a settlement.  Yahoo! got some Google preferred stock, which they promptly sold post-IPO.  In hindsight, it was a monumental blunder as Yahoo! could have played hardball and received much more.  I’ve been in touch with 3 “unnamed” contacts who were familiar with those discussions at the time.  There is no “out” for Yahoo! from that deal.  It can’t be redone, even  though a majority of Google’s $29 billion in revenues last year relate to that GoTo patent.

But all is not lost for Yahoo! shareholders.  That original GoTo patent can be used by Yahoo! (or any owner of that patent) against anyone else making money off of paid search today.  That could include AOL (AOL), Microsoft (MSFT), and — most interestingly — Facebook.

And of course, with over 1,100 granted US patents, Yahoo! has more than just the GoTo paid search patent.  It also has valuable patents related to: display ads, social networking, Inktomi’s spider search technology, processing unsolicited bulk e-mail, transmission of multicast media between networks, digital content management (both content creation and content distribution), and data center management.