So much for the speculation over what Microsoft would do with the 925 patents it just bought from AOL earlier this month. At least part of the mystery is solved. Redmond is reselling most of them to its ally Facebook.
Microsoft and Facebook on Monday announced a deal for the social networking giant to purchase some of Redmond's recently acquired AOL patent portfolio for $550 million in cash. That leaves Microsoft with 275 of the patents.
"Today's agreement with Facebook enables us to recoup over half of our costs while achieving our goals from the AOL auction," said Brad Smith, executive vice president and general counsel at Microsoft. "As we said earlier this month, we had submitted the winning AOL bid in order to obtain a durable license to the full AOL portfolio and ownership of certain patents that complement our existing portfolio."
Facebook Beefs Up IP
In the initial AOL auction, Microsoft secured the rights to own or assign approximately 925 U.S. patents and patent applications plus a license to AOL's remaining patent portfolio, which contains approximately 300 additional patents that were not for sale.
The new deal gives Facebook about 650 AOL patents and patent applications, plus a license to the AOL patents and applications that Microsoft will purchase and own. Microsoft will also retain a license to the patents it is selling to Facebook and also still has a license to the approximately 300 patents AOL did not sell in its auction.
"Today's agreement with Microsoft represents an important acquisition for Facebook," said Ted Ullyot, general counsel at Facebook. "This is another significant step in our ongoing process of building an intellectual property portfolio to protect Facebook's interests over the long term."
Although Yahoo wasn't specifically mentioned, some industry watchers are betting the patent battle between Yahoo and AOL was at least one motivation for the all-cash patent swap. We asked Greg Sterling, principal analyst at Sterling Market Intelligence, for his views on the transaction.
"All the major tech companies now are conscious of the need to have a defensive arsenal of patents to protect against litigation, which is increasing," Sterling told us. "This move is consistent with others being made in the segment, most notably Google's $12.5 billion acquisition of Motorola Mobility mostly for its patent portfolio. The move by Facebook was undoubtedly prompted by the recent lawsuit by Yahoo."
Yahoo filed suit against Facebook in March for patent infringement. Yahoo alleges the social-networking giant is trespassing on various technologies that Yahoo innovated. Specifically, Yahoo claims Facebook is infringing on patents that cover its technologies for privacy, advertising, site customization, social networking and integrated communications in social networking.
That didn't sit too well with Facebook, which turned the tables in early April by filing a countersuit against Yahoo. Facebook alleges the search engine company has infringed on its patents for advertising, photo tagging and online recommendations. Yahoo says the lawsuit is "without merit." The cases could drag on for years.