By John Letzing

Yahoo Inc. (YHOO) is in settlement talks with Facebook Inc. (FB) over the controversial patent-infringement lawsuit filed by Yahoo against the social site in March, potentially pushing the Silicon Valley dispute toward a conclusion.

"The parties are currently engaged in settlement negotiations," Yahoo attorneys said in a filing Tuesday in U.S. District Court for the Northern District of California.

Yahoo, of Sunnyvale, Calif., caused a stir in technology circles when it filed suit claiming that Facebook had infringed ten of its patents related to online advertising and social networking innovations.

The move was uncharacteristic for Yahoo, which had traditionally used its patent portfolio to defend itself from litigation rather than pursue it with rivals.

The move also came at a time when Yahoo was seeking out new sources of revenue under erstwhile Chief Executive Scott Thompson, who had taken the job in January.

Thompson was ousted last month, after a misrepresentation of his academic credentials was discovered in his company biography.

Technology firms like Yahoo have long complained about frivolous patent litigation, though at the time Yahoo filed its suit it defended the move as necessary to rightfully protect its inventions.

Facebook, which was moving swiftly toward an initial public offering that was ultimately staged in May, expressed surprise with the litigation and noted that it had long been a business partner of Yahoo's.

Facebook, of Menlo Park, Calif., later countered with its own allegations that Yahoo had infringed Facebook's patents.

The firms have since been engaged in legal wrangling, and Yahoo's attorneys said in the filing Tuesday that an extension for a deadline to file further claims could help "facilitate" a settlement agreement.

Write to John Letzing at john.letzing@dowjones.com