• November 19, 2008

Technology company DivX has sued Yahoo for breach of contract for allegedly discontinuing a distribution deal.

The San Diego, Calif.-based DivX, which offers downloads of its video compression-decompression software, alleges that in September 2007 it entered into a two-year agreement to bundle its software with a Yahoo toolbar. Yahoo allegedly terminated that agreement last week, approximately 10 months early.

From 2004 through 2007, DivX had a toolbar deal with Google that generated 15-18% of DivX's revenue.

DivX is asking for damages and also asking the court to order Yahoo to honor the original deal. The lawsuit was filed in Santa Clara County Superior Court.

A Yahoo spokesperson said the two companies have been working to restructure a distribution relationship that began in September 2007. "Unfortunately, the companies could not come to an amicable resolution as of this time," the spokesperson said. "Yahoo is disappointed with DivX's decision to pursue legal action rather than renegotiate this agreement. We intend to vigorously defend ourselves in court, but will reserve further comment since this litigation is pending." --Wendy Davis