Facebook to pay Microsoft $550M for hundreds of former AOL patents

Facebook will pay Microsoft $550 million in cash to buy a portion of the AOL patent portfolio that Microsoft recently agreed to acquire.

Two weeks ago Microsoft agreed to pay AOL more than $1 billion for the broader portfolio — reportedly outbidding Facebook in that original auction. However, Facebook and Microsoft are partners, with Microsoft owning a minority stake in the social network, and the deal this morning gives Facebook significant rights to the portfolio that AOL is selling.

Here is the breakdown from a news release announcing the deal this morning.

In the initial AOL auction, Microsoft secured the ability 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.As a result of today’s agreement, Facebook will obtain ownership of approximately 650 AOL patents and patent applications, plus a license to the AOL patents and applications that Microsoft will purchase and own.

Upon closing of this transaction with Facebook, Microsoft will retain ownership of approximately 275 AOL patents and applications; a license to the approximately 650 AOL patents and applications that will now be owned by Facebook; and a license to approximately 300 patents that AOL did not sell in its auction.

One reason that Facebook needs to bolster its patent portfolio is because of litigation, such as the suit brought by against the company last month by Yahoo — another of Microsoft’s partners.

Microsoft general counsel Brad Smith says in a news release, “Today’s agreement with Facebook enables us to recoup over half of our costs while achieving our goals from the AOL auction. 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 general counsel Ted Ullyot calls it ”another significant step in our ongoing process of building an intellectual property portfolio to protect Facebook’s interests over the long term.”

  • Guest

    Congratulations to Microsoft on another big win! I never had the company pegged as a flipper, but I like that they’re always changing.

  • Guest

    Recoup half their costs, but in return for giving up 2/3rds of the portfolio and licensing FB for the rest. I guess we’d have to see more detail on what the 275 that MS will retain look like and what kind of future licensing opportunity (or defensive value) they might represent. But on the surface it looks like FB got the better end of this deal.

    • http://www.christopherbudd.com Christopher Budd

      FB may be getting 2/3rds of the portfolio and only giving half the costs, but there’s got to be another benefit to balance out that imbalance.

      If I had had to speculate, I’d say that this this feels like Microsoft and FB struck a deal before the initial purchase from AOL and that deal is focused on a bigger goal. My guess is that these two are looking to carve up Yahoo (much like the great powers did to Poland in the 19th Century: http://en.wikipedia.org/wiki/Poland#The_Age_of_Partitions).

      My guess is that FB can use the patents more effectively in litigation and the goal is to use that to press Yahoo into a corner where they finally have to sell themselves. My guess is that Microsoft gets the search business and technologies and Facebook gets the social business and technologies.

      Purely speculative, but that’s what it feels like to me.

      • Guest

        Which I already alluded to: the remaining 275 perhaps have enough value that this more than makes up for the apparent one-sided nature of this deal with FB.

        I don’t think there’s any doubt that MS & FB struck this deal ahead of time, at least in principle. Not sure I buy the “carve up Yahoo” motivation though. The benefit for FB there is obvious. But less so for MS.

        • http://www.christopherbudd.com Christopher Budd

          Search. If Bing absorbed Yahoo search it would basically double the comscore numbers:

          http://www.geekwire.com/2012/google-maintains-internet-search-lead-664-percent-searches/.

          Plus, Microsoft enabling FB to achieve some of their strategic goals would surely translate into future considerations.

          • Guest

            Sure, but Bing is already benefiting from that traffic, albeit at the cost of profitability due to transfer costs. And on the positive side they’re not losing share the way Yahoo is. If the combined number had just MS’s name attached, there would be nowhere to hide the fact that Yahoo/MS has been completely ineffective in taking share from Google. Indeed Google’s share has increased post partnership. There might be some cost benefits, which aren’t unimportant. But even that isn’t guaranteed. So why “double down” on a losing bet?

          • http://www.christopherbudd.com Christopher Budd

            All fair points. But winnowing the field down to Google and Bing, plus the numbers boost could change perceptions (rightly or wrongly) about the strength of Bing.

            At this point, too, I think everyone looks at Yahoo as a dead company walking and so it’s a question of who’s going to get what parts.

            And like I say, making FB’s life easier earns some goodwill for future considerations.

            At the very least, FB-MSFT is looking more and more like a genuine alliance against Google.

  • http://www.nickwhite.me/ Nick White

    For such an innovative company, that’s an awful lot of cash not being spent on innovation.

    • Guest

      How much is losing the Yahoo lawsuit worth?

  • rocky john

    Facebook will pay Microsoft $550 million in cash to buy a portion of the
    AOL patent portfolio that Microsoft recently agreed to acquire.