Microsoft, AOL Do a Billion-Dollar Patent Waltz
AOL will pocket $1 billion in a deal to sell 800 patents to software giant Microsoft. "AOL has most of the early core patents that surrounded social networking and most of the browser patents that Microsoft didn't have," said analyst Rob Enderle. "The combination could be used to slam Google in similar areas and protect Microsoft partner Facebook."
04/09/12 11:55 AM PT
Microsoft has agreed to buy more than 800 patents from AOL for over US$1 billion.
The deal gives AOL a cross-license to the patents it's selling to Microsoft, a source close to Microsoft confirmed. Further, Microsoft will get a non-exclusive license for the remaining 300+ patents and patent applications that AOL continues to hold.
AOL will return what it calls a significant portion of the proceeds to shareholders.
News of the deal, which is scheduled for completion by the end of 2012, sent AOL share prices soaring 42 percent Monday morning.
The Meat of the Deal
The pending sale represents more than 70 percent of AOL's stock of patents.
Microsoft will get some patents in the advertising, search, content generation and mapping categories, while AOL will retain others, according to the Microsoft source.
What Microsoft Might Do Now
"AOL has most of the early core patents that surrounded social networking and most of the browser patents that Microsoft didn't have," Rob Enderle, principal analyst at the Enderle Group, told the E-Commerce Times. "The combination could be used to slam Google in similar areas and protect Microsoft partner Facebook."
It could be that Microsoft believes AOL's intellectual property "offers significant armaments to its own portfolio that could provide both defensive support against possible litigation from competitors and offensive capabilities against those same competitors," Charles King, principal analyst at Pund-IT, speculated. "As hot as patent litigation has become, the AOL deal could prove to be a valuable investment."
Currently, Facebook and Yahoo are suing each other; Microsoft is moving its European distribution center from Germany to the Netherlands to avoid patent litigation; Motorola Mobility and Samsung have filed patent suits against Apple which has responded in kind; and patent trolls are surfing the high-tech waters, keeping patent holders on their toes.
Why Nibble on Netscape?
Given that Microsoft owns the dominant browser, Internet Explorer, its purchase of Netscape's old technology raises some questions, especially given that Microsoft's working on the next version of Internet Explorer right now.
"Netscape's technology is certainly outdated, but the value of early entrant IP is often far longer lived than its creators," Pund-IT's King told the E-Commerce Times.
Microsoft's "losing [market] share on browsers, and Netscape created the browser, which would suggest that the core patents and copyrights could be very powerful," Enderle said.
However, Microsoft apparently is not acquiring the Netscape brand name, the Netscape URL or the Internet service provider aspect of the Netscape business.
That's because "Microsoft isn't interested in whatever is left of Netscape the company," Enderle suggested.
Is Redmond Bucking the Trend?
Of late, it appears that the larger or more established companies are selling patents to newer ones. For example, Facebook bought 750 patents from IBM in March to defend itself against litigation from Yahoo.
"What's most interesting here is the degree to which older, established brands are acting as repositories for mostly up-and-coming companies, such as in the IBM-Facebook deal," Pund-IT's King said.
"What's a bit different is that Microsoft has found a way to make patent intimidation, such as using vague patent claims to press Linux- and Android-using competitors and partners into signing licensing deals, into a money-making business," King continued. "I expect the company sees AOL's IP as key to similar future deals."