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FB Embroiled in Trademark Trial

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Reportedly, Facebook Inc. (FB - Free Report) is set to defend a trademark infringement lawsuit brought by Timelines Inc. for using the term “timeline”. Launched in 2009 by Timelines Inc., the “timelines” application allowed users to develop web pages featuring user-defined information related to varied events.

Timelines Inc. had sued Facebook for allegedly violating its valid trademark on the term “timelines”. Timelines Inc also complained unfair competition in the lawsuit that was filed in Sep 2011. Facebook countersued Timelines claiming the term to be too generic for protection under any trademark. Facebook not only asked the presiding judge to cancel the Timelines trademark but also claimed non-infringement for using the term.

Coming to the current scenario, U.S. District Judge John W. Darrah ruled against Facebook as it failed to produce evidence that the Timelines trademark over the term was generic. The trial is set to begin from Apr 22.

Reportedly, Timelines hopes to claim an amount equivalent to Facebook’s “timeline-derived ad revenue” in the event of the company getting a favorable judgment. We believe that these trials take up a lot of time to provide definitive results and thus an out-of-court settlement cannot be ruled out in the present scenario.  

We believe that Facebook has significant growth opportunities in the online advertising format. Facebook’s massive user base and its ability to track personal details over time make it a formidable force in the online ad market.

Facebook can use this massive database to help advertisers target relevant ads going forward. Moreover, the company has acquired the Atlas Advertiser Suite from Microsoft (MSFT - Free Report) to strengthen its position in the online ad market. The company’s expansion in the mobile segment is impressive.

However, a volatile macroeconomic environment and increased investments to expand mobile offerings are expected to hurt margins in the near term. Competition from Google and Yahoo in the display ad market are the other headwinds going forward.

Currently, Facebook has a Zacks Rank #3 (Hold).

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