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Oath and Mozilla are in a legal battle over a Yahoo search deal

A suit and countersuit are related to a problematic agreement that former CEO Marissa Mayer crafted (badly).

Former Yahoo CEO Marissa Mayer testifies before Congress.
Oh, Marissa.
Alex Wong / Getty

Yahoo’s new owner Oath — which, in turn, is owned by telecom giant Verizon — is now in a legal battle with browser company Mozilla over a search deal that was struck by former Yahoo CEO Marissa Mayer.

Last week, Yahoo Holdings and Oath filed a complaint against Mozilla, alleging that it improperly terminated an agreement between Mozilla and Yahoo. Now, Mozilla just filed a cross-complaint, claiming breach of contract.

Mozilla announced that it was going back to Google, which had been its longtime search provider, in mid-November in the U.S., Canada, Hong Kong and Taiwan. Google had remained its partner in other countries and Mozilla also has deals with Yandex in Russia and Baidu in China. At the time, it also announced a new browser, Firefox Quantum.

In its response today to Oath’s suit, Mozilla posted information online, including a long statement from Mozilla legal head Denelle Dixon:

We recently exercised our contractual right to terminate our agreement with Yahoo based on a number of factors including doing what’s best for our brand, our effort to provide quality web search, and the broader content experience for our users.

Immediately following Yahoo’s acquisition, we undertook a lengthy, multi-month process to seek assurances from Yahoo and its acquirers with respect to those factors. When it became clear that continuing to use Yahoo as our default search provider would have a negative impact on all of the above, we exercised our contractual right to terminate the agreement and entered into an agreement with another provider.

The terms of our contract are clear and our post-termination rights under our contract with Yahoo should continue to be enforced. We enter into all of our relationships with a shared goal to deliver a great user experience and further the web as an open platform. No relationship should end this way — litigation doesn’t further any goals for the ecosystem. Still, we are proud of how we conducted our business and product work throughout the relationship, how we handled the termination of the agreement, and we are confident in our legal positions.

Recode broke the news of the problematic Yahoo-Mozilla deal in mid-2016. As I reported at the time, under terms of a contract, whoever acquired Yahoo was required to pay Mozilla annual payments of $375 million through 2019, even if it does not think the buyer was one it wanted to work with and walked away. It was Mayer who struck the deal in late 2014 to become the default search engine on the well-known Firefox browser in the U.S.

Mozilla switched to Yahoo from Google after Mayer offered a much more lucrative deal that included an unprecedented term to protect Mozilla in a change-of-control scenario. It was a scenario that Mayer never thought would happen, which is why she apparently pushed through the problematic deal point.

According to the change-of-control term, 9.1 in the agreement, Mozilla had the right to leave the partnership if — under its sole discretion and in a certain time period — it did not deem the new partner acceptable. And if it did that, even if it struck another search deal, Yahoo was still obligated to pay out annual revenue guarantees of $375 million.

Who owned Yahoo has indeed been a big concern for Mozilla, whose business depends on a robust search partner and the payments it gets from them for making it the default option for users of Firefox. At one point, about 90 percent of its revenue was due to its previous Google deal, for example, which had paid Mozilla an annual guarantee of $300 million.

Oath has not responded to a request for comment on the countersuit. Here’s a link to Mozilla’s response and also copies of both lawsuits.

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