Microsoft will pay AOL more than $1 billion to buy 800 technology patents and license another 300 from the early Internet leader under a deal announced between the companies this morning.

AOL’s patents include some that outside analysts consider fundamental to core online activities, such as web-based messaging, multimedia and data retrieval. The deal promises to improve Microsoft’s position in the courtroom and at the bargaining table as it goes head-to-head with other tech giants in patent disputes and licensing talks.

Microsoft won the patents in a competitive auction. The other bidders aren’t publicly named.

“This is a valuable portfolio that we have been following for years and analyzing in detail for several months,” said Brad Smith, Microsoft’s general counsel, in the news release announcing the deal.

The companies say the deal should close by the end of the year, pending regulatory approval.

So what exactly is Microsoft getting? “While AOL does not seem to have any patents that could be deemed essential to wireless standards, it certainly owns many technologies that are fundamental to electronic and voice messaging, Internet user experience, multimedia sharing, and web-based data retrieval, technologies that have become common place in today’s online world,” wrote intellectual property researchers EnvisionIP in an earlier analysis of the AOL patents. (Via AllThingsD)

AOL will receive a license back from Microsoft giving it continued rights to the patents it’s selling. The company says it will “return a significant portion of the sale proceeds to shareholders and will determine the most efficient and effective method to do so prior to the closing of the transaction.”

AOL shares are up more than 40 percent. Microsoft shares are down with the broader market.

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  • Guest

    Another bold, game-changing action by Steve Ballmer. Now this is going to displace Apple and Google and propel MS back into the forefront of technology while reenergizing growth. Oh right, nevermind.

    Actually, I guess it’s better than Ballmer spending $1 billion on another failed acquisition. At least this way there should be some future patent troll revenue to recoup the original investment.

  • Guest

    Congratulations to AOL on a successful exit! This once again shows that innovation leads to reward.

  • Christopher Budd

    It’s kind of interesting that Microsoft and Facebook both have big acquisition deals today and both are for US$1 Billion.

    Setting aside the fact that I keep hearing Dr. Evil say “One Billion dollars” in my head over this all, it’s interesting to compare/contrast the deals and what they say about what the companies are doing.

    I admit, I’m scratching my head on Facebook (like I posted) but that looks like business growth of some kind.

    The Microsoft one, as Todd notes, is basically going to help bolster legal battles.

    I’m all in favor of intellectual property, but I admit I’m distressed at how tech seems to be turning away, generally, from innovation and competition and towards acquisition and litigation.

    It’s been said that the startup environment has changed due to regulatory changes and startups look to get bought out rather than become big players themselves. In theory, I’ve read, the new JOBS act should help with that.

    I’d love to see if that will make a change and maybe tilt the board back to startups and innovation.Otherwise, tech is starting to look a lot like finance. Boring, stodgy, and too big to fail.

    • Guest

      People who make this argument never seem to be able to reconcile the fact that the most vibrant market for technology innovation is still the US, where patent protection laws are among the strongest. I also rarely see this argument coming from anyone who actually invented something patentable, just those who want to leverage the inventions of others for free.

      • Sławek

        I wouldn’t call the US patent laws strong but faulty and failing at a large scale. You can call an invention anything, there is no minimum requirements as when recognize something as a patent. The patents in the case Microsoft vs. Barnes & Noble Nook read like software requirements and not actual solutions. So if you would try to implement them you would still have to find out how to do this and achieve the effect they describe for yourself. Essential infos are missing. It’s a scam.

        • Christopher Budd

          I would agree. Most of the lawsuits are about minutiae not real, large innovations. Indeed, ironically, those instances where you could argue real, large innovations have been copied fail to win in the courts (say: the touch screen that Apple developed and Android is hauntingly similar to).

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