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In a twist on the classic David-and-Goliath formula, Web giant Yahoo! is suing Menlo Park, CA, start-up Xfire for patent infringement. The basis of the complaint, filed last week in US District Court (Northern District of California) and served to Xfire representatives just two days ago, alleges that Xfire is willfully infringing on a patent controlled by Yahoo! Inc.

The patent, referred to as the '125 patent for the last three numbers of US Patent No. 6,699,125 (see screenshots for select pages from the patent documents), was granted to two then-Yahoo! employees Brian Gottlieb and Chris Kirmse on March 2, 2004. As is typical, ownership of inventions by employees remains with the corporation the employees work for. Such ownership rights are usually sealed in hiring contracts signed by the employee when he or she is first brought on.

In the case of the '125 patent, Gottlieb and Kirmse were employed by Yahoo! when they developed certain technologies for a game-specific variation on Yahoo!'s popular Yahoo! Messenger. Yahoo! has been the sole assignee--or owner--of the '125 patent since it was granted.

The complaint describes the Yahoo! Messenger instant message service--in this case, the GameProwler instant messenger application--as one that "allows users to use a game server in connection with a messenger server to permit 'buddies' to know when other 'buddies' are playing games online, and easily join such games."

Xfire offers a client application that allows gamers to chat with other gamers online. It also serves to help quickly facilitate gameplay on remote servers.

"Like the Yahoo! invention," the Yahoo! complaint reads, "this capability allows a user to see other users identified as 'friends' or 'buddies' designated on the user's computer in an instant messenger window. Also, like the Yahoo! invention, this product allows a user to see if a 'friend' or 'buddy' is online with her instant messenger program activated and also to see whether that 'friend' or 'buddy' is playing a game online...

"Defendant has no license or permission from Yahoo! to offer this capability."

The Xfire client was first made available in beta form last year. Xfire recently promoted the fact that it had reached the 1-million-registered-user threshold.

Yahoo!'s GameProwler appears to be the application it feels was compromised by the XFire client. Industry sources tell GameSpot that Xfire currently has a patent pending for its service.

Key to the complaint is Chris Kirmse, now Xfire's vice president of engineering. Yahoo! claims that "after Kirmse joined defendant [Xfire], defendant began to develop, test, and offer instant messenger 'client' software and a messenger server that, when operated with game servers, offers the capabilities of the invention."

Kirmse joined Xfire in August 2003. He had left the employ of Yahoo! some years earlier, according to sources.

Neither Yahoo! employees connected with the complaint nor attorneys representing Yahoo! in this matter would comment on the legal proceedings. Mike Cassidy, Xfire CEO, also declined requests for comment by GameSpot.

[UPDATE] On Monday, February 7, Xfire officials did release the following statement: "Xfire does not infringe the Yahoo patent. We are very disappointed in the way this has been handled to date. We are hoping that this will be resolved shortly. We'd like to thank all 1 million Xfire users for their continued wonderful support. " [END UPDATE]

As this complaint is just one week old, no "next steps" are certain. Lawyers familiar with patent law have told GameSpot a case like this could cost up to $2 million to defend and take up to two years to fully adjudicate.

Impact on Xfire, a company founded in 2002 by Dennis "Thresh" Fong, Mike Cassidy, and Max Woon, is unclear. Likely, the company remains focused on customer acquisition over revenue growth--which makes defense of such a complaint problematic.

Yahoo!, on the other hand, recently reported it had earned $372.5 million on revenues of $1.08 billion for the most recently concluded quarter. Prospects of a drawn-out legal imbroglio, therefore, wouldn't seem to threaten Yahoo!'s well-being. Some industry sources have even speculated the lawsuit suggests a possible first step toward overtures by Yahoo! to buy out the gaming start-up.

How will David fare against Goliath in this case? GameSpot will keep you posted.