DivX sues Yahoo over canceled ad deal

Just two weeks after Yahoo learned that it would be losing out on an ad deal with Google, its own reneging on an ad deal is prompting DivX to sue the search company.

Stephanie Condon Staff writer, CBSNews.com
Stephanie Condon is a political reporter for CBSNews.com.
Stephanie Condon

Yahoo is in yet another sticky situation as a result of a canceled advertising deal.

Digital media company DivX on Monday filed a lawsuit against Yahoo because the search company backed out of a two-year advertising agreement the companies reached in September of last year. DivX said the canceled deal will hurt its revenues.

Under the terms of the agreement, consumers who downloaded DivX video software tools were offered a co-branded version of the Yahoo toolbar as well as a version of Internet Explorer 7 with other Yahoo services. Before the Yahoo agreement was reached, DivX had a search tools deal with Google.

DivX filed suit in California Superior Court in Santa Clara County, seeking damages and specific performance under the agreement from Yahoo. In light of Yahoo's decision to back off the deal, the company adjusted its 2008 revenue estimates from a range of $95 million to $97 million to range of $90 million to $92 million.

Yahoo said in a statement the two companies have been working to restructure the toolbar distribution agreement but could not reach a resolution.

"Yahoo is disappointed with DivX's decision to pursue legal action rather than renegotiate this agreement," the statement said. "We intend to vigorously defend ourselves in court, but will reserve further comment until we've had an opportunity to review the suit."

The lawsuit comes just two weeks after Google backed out of an advertising deal with Yahoo, which would have brought in substantial revenue for Yahoo.