Silverlight, Microsoft's buggy effort to tackle Adobe's Flash video technology, has another hiccup on the road to mass acceptance. Gotuit, a video-technology startup, has filed suit against Microsoft for patent infringement. Gotuit will be represented by Spencer Hosie, a law firm which has tangled with Team Redmond before and managed to squeeze out a $60 million settlement for Burst.com. Don't even know what Silverlight is? Read the primer so you can bluff your way out of a gaggle of Google employees. [News.com]

Google and Yahoo's nearly 90 percent share of all search queries is impressive. Google and Yahoo's share of money spent on actual search advertising is yet more so. Efficient Frontier reports that in the second quarter 2008, 95.2 percent of all money spent on search advertising went to Google and Yahoo — 77.4 percent to Google and 17.8 percent to Yahoo. Only 4.8 percent of all money spent on search went to Microsoft. "Google and Yahoo will remain fierce competitors," Google's top lawyer David Drummond told lawmakers earlier this week, trying to convince them Yahoo's plan to outsource its search advertising to Google won't give Google too much power. "This agreement will not remove a competitor from the field."

In a memo filed with the SEC, Yahoo CEO Jerry Yang and Yahoo chairman Roy Bostock made what we can only hope will be their final case to Yahoo shareholders as to why they should vote against Carl Icahn's alternative board at the company's August 1 annual meeting. (While Yang also signed the memo, you can tell Bostock's actually the one who wrote it, because it uses capital letters.) Their key points:

Yahoo chairman Roy Bostock says that if Microsoft had handled itself the way InBev did, buying Anheuser-Busch for $52 billion even after A-B rejected an initial offer, Yahoo and Microsoft would probably be one company by now. "InBev was a classic, perfectly managed takeover," said Bostock.

An AOL team of negotiators is in Seattle right now, trying to sell the business to Microsoft for a price somewhere between $10 billion and $15 billion. An AOL source told Silicon Alley Insider the probability that a deal gets done on this trip is "low/medium." Perhaps in an effort to speed the proceedings and ignite a bidding war, another source told Reuters that AOL-Yahoo merger negotiations — on since April — "have taken on new urgency." If such a bidding war goes down, bet that AOL goes to Microsoft, which has more cash than Yahoo. More importantly, CEO Steve Ballmer will refuse to get left at the altar by Yahoo CEO Jerry Yang again.

(Yang) said 'If we do this deal with Google, Yahoo will become part of Google's pole and Microsoft,' he said, 'would not be strong enough in this market to remain a pole of its own.

• Did Goldman Sachs have a hand in the downfall of Bear Stearns? London-based traders at the firm are now under investigation for spreading negative rumors [WSJ]

Google and Yahoo lawyers are in Washington today, trying to argue that a deal to outsource much of Yahoo's search advertising business won't give Google undue control over the market. A new Hitwise report released today should make their task a bit more difficult. It reveals that in June, Google searches accounted for 69.2 percent of all U.S. queries; Yahoo, 19.6 percent. Together, that's 88.8 percent. Third-place irrelevancy Microsoft comes in at 5.5 percent — which isn't enough to make a dent in the search-ads market. Advertisers tell us that giving Google that much control over the market could ratchet up ad prices by 25 percent.

Can a PR guy run an operating system? Silicon Valley's gut reaction: No way. And yet that's what Facebook COO Sheryl Sandberg has done in appointing Elliot Schrage, her handpicked flack, to run Facebook's platform. The platform, when it launched a year ago, was hailed as the world's next Windows; by opening up its friends lists and other features to outside developers, Facebook would surely become the next Microsoft, ran the standard line of punditry, in an age when the pundits were in love with Facebook. That, more than anything, surely stirred Microsoft to invest $240 million in the company. But in one very short year — or a very long one, rather — Facebook's platform has gone from selling point to PR headache.

Do Yahoo CEO Jerry Yang and Yahoo chairman Roy Bostock disagree on whether Yahoo should ever sell its search business to Microsoft? Citing several sources, BoomTown's Kara Swisher says she knows what Yahoo CEO Jerry Yang wants, period:

Two internal memos from Yahoo CEO Jerry Yang dropped yesterday: one for all the Yahoos and one for all the Yahoo's bosses. Neither are disgraced with one single Microsoft-esque capital letter nor any of the blind optimism that plagued Yang and Yahoo president Sue Decker's earlier memos. In one of yesterday's, Yang writes: "proposals and attacks by microsoft and carl icahn leading up to our meeting are likely to get even more contentious. i know this could is distracting at the very least." Now, one might argue Yang's grammatical miscue in the second sentence stems from a physical weariness only too obvious in recent photographs of the CEO. But given Yang's taste for poetical punctuation, we like to think the "this could is distracting" refrain is actually Yang's attempt to offer the Yahoos a mimetic clue — a warning, even — of the days of confusion and anarchy shortly ahead. Decide for yourself, though. Both of Yang's memos are below.

In a letter to Yahoo shareholders, corporate raider Carl Icahn writes that he's never seen a company "distort, omit and twist" facts quite the way Yahoo did in a statement the company released Saturday night. Yahoo said it had rejected Microsoft's latest offer to buy Yahoo's search business. In the statement, Yahoo said Microsoft made an ultimatum and gave Yahoo only 24 hours to accept or reject the deal. Naturally, Microsoft agrees with Icahn's assement. In a release titled "Microsoft Sets the Record Straight," Microsoft says that it only proposed a new search deal after Yahoo chairman Roy Bostock called Microsoft CEO Steve Ballmer and asked for one. Microsoft says it worked a proposal up by late Friday and sent it, asking Yahoo to confirm in 24 hours whether or not the proposal was "sufficient to form the basis for the parties to engage in negotiations over the weekend on a letter of intent and more detailed term sheets." "This discussion," reads Microsoft's statement, "has been mischaracterized as a take it or leave it ultimatum, rather than a timetable in order to move forward to intensive negotiations." Yeah, we're lost, too. Microsoft's full statement, below.

Corporate raider Carl Icahn made his proxy fight for control of the Yahoo board official today, filing an alternative slate with the Securities and Exchange Commission. The slate includes nine of the ten names Icahn already put forward in a letter to Yahoo chairman Roy Bostock. Bob Shaye, former cochairman and co-CEO of the recently defunct New Line Cinema, is no longer on the list. The filing includes a letter from Icahn to Yahoo shareholders in which Icahn urges them to vote for his slate because "Steve" — as in Microsoft CEO Steve Ballmer — told him it would grease the wheels for a deal: "If a new board consisting of my nominees were to be elected,Microsoft would be willing to enter into discussions regarding a transaction immediately." Icahn's proposed slate and its members brief bios, below.

Reason No. 8347 why we're glad we're not Jerry Yang: We like weekends away from work. Yang never gets them anymore. On Saturday night, Yahoo released a statement letting the world know it rejected yet another Microsoft offer to acquire Yahoo's search business. Kara Swisher reported the terms of that deal today. $2.3 billion a year for outsourcing search — why didn't Microsoft offer that in the first place, without corporate raider Carl Icahn holding a gun to Yang's head? That seems easier. The bullet points, below:

• The Federal Reserve and U.S. Treasury will inject billions of dollars into Fannie Mae and Freddie Mac to shore up the mortgage financing giants. [WSJ]

From the Wall Street Journal: "Yahoo Inc. disclosed Saturday night that it had received and rejected a joint proposal from Microsoft Corp. and Carl Icahn for a restructuring that the Internet giant said would have included the acquisition of its search business by Microsoft." Kara Swisher at AllThingsD has a longer report with quotes from Yahoo and Microsoft execs that weren't in the official statement.

Yahoo CEO Jerry Yang, who says shareholders shouldn't give corporate raider Carl Icahn control of the company because he has no plan other than to sell to Microsoft, got a boost from an unexpected supporter: News Corp. chairman Rupert Murdoch. Murdoch told reporters at Allen & Co.'s Sun Valley retreat that "in six months, (Microsoft) will walk away." The crusty mogul added: "There won't be a deal. There's bad personal feelings."

No, we did not head down to sleepy Palo Alto for the Search SIG meeting featuring small-time players like Mahalo, Wikia and Microsoft, but Mahalo founder Jason Calacanis seems to wish we did. But why bother going when we can get juicy quotes about Jimmy Wales, who founded for-profit Wikia after failing to figure out how to milk Wikipedia for cash from our home office? Those who tuned into Calacanis's Ustream live video channel got juicy quotes like "Guy's got an ethics problem" and "It's naive to think encyclopedias have anything to do with search"? while bemused Wikia representative Jeremie Miller Nick Sullivan sat on the panel. (Wales didn't even show up) You stay classy, Jason! After the jump, a firsthand report from our tipster, including more of Calacanis's wit and wisdom.

Targeting Yahoo again, Microsoft may be abandoning its "Project Granola" plan to grow its online presence organically, but that doesn't mean ignoring food altogether. Microsoft's MSN and Hearst magazines will partner to create Delish.com, a food and recipe site to be released this fall. Just like Conde Nast's Epicurious, but 13 years later! [AdWeek]

Microsoft's plan to counteract Apple's pigeonholing of the company as "PC," the staid, gray suit-wearing office drone played by John Hodgeman in Apple's commercials? Start sounding more like Richard Nixon of course. Microsoft announced it will spend $300 million on an advertising campaign with agency Crispin Porter + Bogusky and Corporate VP of Windows Consumer Product Brad Brooks told reporters the message will be: "The quiet majority of million and millions of Windows Vista users out there are going to have a great experience. The message is ‘Move to Vista. The time of worry is over.’" Sounds a lot like Nixon's 1969 appeal "to you, the great silent majority of my fellow Americans" for support for the Vietnam War to us. Which of course puts Apple in the late Beatles-esque, commercially safe "think different" psuedo-hippy crowd — right where it wants to be.