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Microsoft Bags 800 AOL Patents for $1.1B

{complink 3426|Microsoft Corp.} outbid other contenders for more than 800 patents held by {complink 8355|AOL Inc.} 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 {complink 2294|Google} did when it offered to purchase {complink 12925|Motorola Mobility Inc.}. 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.”

9 comments on “Microsoft Bags 800 AOL Patents for $1.1B

  1. Barbara Jorgensen
    April 9, 2012

    My first dial-up Internet connection was AOL, but after being an early adopter, AOL quickly became obsolete. Still, that number of patents and that kind of premium means they still have a lot of worthwhile technology to contribute.

  2. t.alex
    April 9, 2012

    The first question that pops up is what are these patents? And How relevant are they in the strategy of Microsoft?

  3. Daniel
    April 10, 2012

    Bolaji, is it a right move from Microsoft? They have the capability to create more IPs and patents. Instead of that they are doing all the shortcut ways to make patents in their accounts. I think this is not in a justifiable way and such IP/patent trades have to be discouraged. Transfer of technology is acceptable.

  4. bolaji ojo
    April 10, 2012

    Jacob, Only Microsoft would know eventually whether this was a good deal or not. The company obviously believes this is worth the $1.1 billion it is paying. The only way we would know is by poring over the details of the patent but that hasn't been revealed. The other thing to consider is that Microsoft may have purchased the patents to keep them out of a rival's hands.

  5. Jay_Bond
    April 10, 2012

    Is it just me or does it seem like some of these companies are playing with monopoly money? I mean in the last few years we've had Apple, Google and Microsoft spend billions on patents and technology. It seems like some of these acquisitions are purely to keep them out of their competitors hands.

  6. Clairvoyant
    April 10, 2012

    I agree, Jay. I would love to know what the patents are actually for!

  7. t.alex
    April 10, 2012

    This is so true. These 800-patent acquisitions at 1.1B seem to be still cheap as compared to the latest acquisition of Instagram by Facebook at 1B 😉

  8. Barbara Jorgensen
    April 10, 2012

    Maybe the $1.1b is cheaper than getting sued?

  9. bolaji ojo
    April 10, 2012

    Correct. With $51.7 billion in cash and short-term investments as at the end of the fourth quarter, Microsoft has money to burn and the $1.1 billion buys it leverage in the current patent war.

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