Microsoft Corp. (Nasdaq: MSFT) outbid other contenders for more than 800 patents held by AOL Inc. (NYSE: AOL) and has agreed to pay about $1.1 billion for the portfolio, in addition to non-exclusive licensing rights to the media company's remaining 300 patents.
AOL did not identify the other companies that submitted bids for the patents and did not disclose further information about the portfolio being sold.
Microsoft said in a statement released by AOL that it had been reviewing the patent portfolio over a number of months. The company's decision to acquire the IP assets is part of an industry trend that has seen major wireless equipment companies and other electronics/IT equipment and software firms go after patents held either by direct competitors or enterprises in adjacent markets.
"This is a valuable portfolio that we have been following for years and analyzing in detail for several months," said Brad Smith, general counsel and executive vice president, legal and corporate affairs, at Microsoft in the statement referenced above. "AOL ran a competitive auction and by participating, Microsoft was able to achieve our two primary goals: obtaining a durable license to the full AOL portfolio and ownership of certain patents that complement our existing portfolio."
AOL said it will distribute the bulk of the sales proceeds to shareholders. The company's stock price went up more than 30 percent in pre-market trading on the news, rising $5.69 to $24.11 after closing at $18.42 last week. The company had about $408 million in cash and short-term investments at the end of the December quarter, down by almost half from the year-ago comparable quarter. Its revenue has also stagnated in the last several quarters.
While the benefit of this transaction to Microsoft is instantly obvious (it gains additional strength in an ongoing battle for IP in several of its markets), the implications for AOL are not as clear. Although the company will boost its cash once the transaction is concluded, it will also be giving up any chance of leveraging those assets to enter new markets. By selling more than two-thirds of its existing portfolio, AOL is essentially giving up on becoming a major player in markets where it could have used, or where it was using, the patents.
The company hinted, however, that it will focus attention on its core content market rather than branch into any communications equipment area, as Google (Nasdaq: GOOG) did when it offered to purchase Motorola Mobility Inc. (NYSE: MMI). AOL said the more than 300 patents it is retaining are in areas "spanning core and strategic technologies, including advertising, search, content generation/management, social networking, mapping, multimedia/streaming, and security among others."