Yahoo's free email service could have cost the company an extra quarter of a million dollars a day.
The government called for the huge fine in 2008 if Yahoo didn't go along with an expansion of U.S. surveillance by surrendering online information. The company regarded that step as unconstitutional.
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At stake, according to the federal government, was national security.
The director of national intelligence at the time, Mike McConnell, says in a court document supporting the government's position that international terrorists were using Yahoo to communicate over the Internet.
The outlines of Yahoo's secret and ultimately unsuccessful court fight emerged when a federal judge ordered the unsealing of some material about the court challenge.
(Disclosure: CNBC has a content-sharing partnership with Yahoo's finance site.)
—By The Associated Press