Facebook Hit By Blackberry Lawsuit, Legal Troubles Escalate

Facebook’s (NASDAQ:FB) legal troubles escalated recently after Canada-based Blackberry (NYSE:BB) filed a patent infringement lawsuit in a Los Angeles federal court.

Per Reuters, Blackberry claimed that Facebook and its WhatsApp and Instagram applications have copied technology and features from the Blackberry Messenger.

Reportedly, Facebook intends to fight the lawsuit. The company’s Deputy General Counsel Paul Grewal said that “Blackberry's suit sadly reflects the current state of its messaging business. Having abandoned its efforts to innovate, Blackberry is now looking to tax the innovation of others.”

Facebook shares declined 0.3% to close at $179.78 on Mar 6. The shares have returned 30.6% in the past year, substantially outperforming the industry’s rally of 18.9%.

Legal Troubles Dent Brand Image

Apart from the latest lawsuit, Facebook has been grappling with a number of issues that have attracted legal attention. The Russian meddling in the 2016 U.S. Presidential elections has not only dented the platform’s brand image but also brought the security loopholes into spotlight.

Recently, Special Counsel Robert Mueller indicted 13 Russian nationals and three Russian groups for interfering with the 2016 U.S. elections, with the purchasing of ads on Facebook being one of the many illicit activities mentioned.

Moreover, the company has been criticised for not doing enough to prevent the proliferation of “fake news” as well as police “terrorists and hate groups” on its platform.

Notably, the Simon Wiesenthal Center in its latest annual digital terrorism and hate report card gave B+ grade to Facebook and commented that “more work needs to be done” in this regard.

Further, privacy violation and data collection & usage rules have been a constant bother for Facebook users. Since 2008, the company has been facing lawsuits over the alleged violation of user privacy. In 2016, the German Federal Cartel Office commenced an investigation into the company’s collection and use of user data.

Facebook, Inc. Revenue (TTM)

Facebook, Inc. Revenue (TTM) | Facebook, Inc. Quote

Recently, WhatsApp’s unilateral decision to start sharing users' phone numbers and other information with Facebook was objected by the European Union (“EU”).

Better Late than Never — Facebook Takes Corrective Steps

To regain trust of its users and advertising clients, Facebook has updated its platform. This was done to prevent false news, hate speech and other abusive content.

The company is also investing on security systems and Artificial Intelligence (“AI”) technology to show more news from trusted sources and take down suicidal as well as terror content. Facebook is also working on making ads more transparent.

Management expects investments on these updates to help Facebook build a “stronger community” in the long haul. However, these investments might negatively impact profits in the near term.

Zacks Rank & Other Stocks to Consider

Currently, Facebook carries a Zacks Rank #2 (Buy).

Paycom Software (NYSE:PAYC) and Veeva Systems (NYSE:VEEV) are other stocks worth considering in the broader technology sector. Both the stocks sport Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Paycom and Veeva are currently pegged at 25.75% and 17%, respectively.

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