The ruling by the 49th Civil Court of the Federal District of Mexico City, which was issued on Friday and perplexed the tech world, involves allegations of breach of contract related to an online yellow pages listings service, according to Yahoo.

The lawsuit was filed in November 2011 by Worldwide Directories S.A. de C.V. and Ideas Interactivas S.A. de C.V. against Yahoo and Yahoo de Mexico.

Carlos Bazan-Canabal, who says he is a partner in both firms and is named as their strategic planning director in copies of the court ruling obtained by Reuters, said the plaintiffs were prepared to listen if Yahoo made an offer.

"If we can reach a settlement with an interesting number, we would go for it," Bazan-Canabal told Reuters, adding it could be for less than the preliminary award. "It's up to them."

He later told Reuters that before the judgment, the companies had made a settlement offer for less than the sum awarded by the court and Yahoo had rejected it. He did not disclose further details of that offer and stressed that the plaintiffs did not feel the need to press Yahoo for a settlement.

"If there's no intention from Yahoo to get a hold of us and potentially reach a settlement, we will pursue all roads both in Mexico and around the world where we might be entitled to compensation," said Bazan-Canabal, who has been meeting lawyers in the United States this week about the dispute.

Bazan-Canabal, who noted there were "less than five" people behind the case against Yahoo, said there were still potential damages in the suit that had not yet been calculated.

"This potentially could go up to over $3.5 billion," said Bazan-Canabal, a former employee of Yahoo de Mexico.

Yahoo believes it has "numerous" grounds to appeal, including both errors in procedure and in application of law, a person familiar with the matter told Reuters.

Yahoo was dismissive of any suggestion of settling.

"We're not going to comment on our legal strategy, beyond the fact that we believe the claims are without merit and will vigorously pursue an appeal," a company spokeswoman said.

A JPMorgan analyst said the judgment, if sustained, would cost the company an estimated 40 percent of its 2012 cash balance, as projected by the bank.

Despite the court's judgment, the ruling noted that Yahoo's objections had been "partially well founded."

BANKRUPTCY

Bazan-Canabal said the dispute centered on agreements signed between Yahoo de Mexico and Ideas Interactivas between 2002 and 2004 over a venture for an online business search function "Yahoo! Paginas Utiles" as well as printed volumes.

Yahoo Inc. also entered into agreements with the Mexican company in those years, the court documents showed.

After initial success with the yellow pages search project, the two sides agreed to extend the model to other parts of the world including Puerto Rico, Central America, Australia and Japan, Bazan-Canabal said. But Yahoo in 2005 notified Ideas Interactivas it was terminating the deal, he added.

The joint agreement had been due to last until 2009, with options to extend it into 2011, he said. Breaking the deal caused Ideas Interactivas to go bankrupt, Bazan-Canabal said.

"We weren't able to update listings and so forth, and that brought as a consequence us being in default with our advertisers," he added, noting that Ideas Interactivas had more than 300 employees in Mexico in 2004.

The ruling said the damages awarded to the plaintiffs include a $2.4 billion sum related to alleged non-compliance with agreements, covenants and non-disclosure agreements or confidentiality agreements linked to the joint expansion plans.

It also orders the return of the original database owned by Ideas Interactivas and Worldwide Directories, which Bazan-Canabal said was set up as a holding company for the former.

The ruling also says Yahoo de Mexico filed a counterclaim against Worldwide Directories, seeking damages relating to advertising rights and other alleged infringements.

Any appeal by Yahoo is expected to be heard by a panel of three judges in a superior court in Mexico City.

An official at the district court in Mexico City said Yahoo had until about January 11 to appeal.

Bazan-Canabal, who operates a host of websites, said he joined Yahoo in 1999 and later helped to launch Yahoo de Mexico.

A Yahoo spokeswoman confirmed he worked for Yahoo de Mexico, but declined to comment further.

Yahoo's most recent 10Q filing, which lists major ongoing legal proceedings, makes no mention of the lawsuit.

Shares of Yahoo fell 0.2 percent to close at $18.89 on Nasdaq.

(With reporting by Alexei Oreskovic in San Francisco and Alexandra Alper in Mexico City; Editing by Simon Gardner, Richard Chang and Andrew Hay)

• A Permanent Economic Emergency