Google and Yahoo! kiss and make up

Google has agreed to give Yahoo! 2.7 million shares of its stock to settle patent infringement and other legal claims.

Google said it expects to record a charge of between $260m and $290m as a result of the settlement, leading to a net loss for the third quarter, ending 30 September. Google said it will realise an income tax benefit in that quarter of between $100m and $115m related to this non-cash charge.

As part of the deal, Google has agreed to license several patents from Yahoo! subsidiary Overture Services, ending a two-year court battle that threatened Google's primary source of revenue - advertising. Overture, a pioneer in commercial search, holds intellectual property rights to pay-per-click and bidding systems that grant websites higher placement in search results - both fundamental to Google's ad network.

The two companies also ended a dispute over Yahoo!'s right to buy shares in Google, which is preparing for an initial public offering. Yahoo! held warrants to purchase 3.7 million shares of Google under an agreement struck in 2000. Google issued 1.2 million shares to Yahoo! in June 2003 pursuant to a conversion provision in the deal, but Yahoo! contended it held rights to more, according to a Google filing with the US SEC.

To resolve the two matters, Google agreed to issue 2.7 million shares of Class A common stock to Yahoo!. In turn, Yahoo! dropped its lawsuit against Google and issued a "fully paid, perpetual licence" to Overture patents, according to SEC documents that Google filed on Monday.

A Yahoo! spokeswoman said: "We're pleased with the terms of the settlement and glad to have the dispute resolved." A Google spokesman expressed similar pleasure.

Stefanie Olsen writes for News.com