Microsoft Flips AOL IP to Patent-Hungry Facebook

Just two weeks after forking over more than US$1 billion to AOL for hundreds of patents and patent applications, Microsoft resold 650 of them to Facebook on Monday.

Each party in this latest transaction will retain licenses to the intellectual property (IP) the other will hold when the deal is completed.

The purchase, Facebook said, is another step in its process of building an IP portfolio to protect its interests.

“Facebook’s using a lot of Microsoft technology, and Microsoft had a fairly hefty investment in them early on, so Microsoft’s protecting that investment,” Rob Enderle, principal analyst at the Enderle Group, speculated. “It looks as if the two firms are collaborating to ensure Facebook’s existence.”

What Facebook’s Getting

In addition to receiving about 650 of the patents and patent applications that Microsoft’s getting from AOL, Facebook will obtain a license to the 275 patents and applications that Redmond will retain for its own use.

Facebook will shell out about $550 million for the IP purchased.

The IP Microsoft’s purchasing from AOL includes patents in advertising, search, content generation, mapping and Netscape’s browser technology. It’s unclear which of these Facebook will obtain.

The Microsoft-Facebook deal will have to wait until Redmond’s purchase of AOL’s IP is completed. That’s scheduled for the end of this year.

A Moveable IP Feast

With this latest purchase, the relationship among AOL, Microsoft and Facebook becomes complicated.

Microsoft will obtain licensing rights to the 300 or so patents and patent agreements AOL will retain, and AOL will retain cross-licensing rights to the 925 it sold to Microsoft.

Since the deal between Microsoft and Facebook is structured similarly, this could mean Facebook and AOL will each have cross-licensing rights access to the IP the other continues to hold.

“It’s a power play of sorts — I’ll sell you this patent but I still get to use it,” Spencer Belkofer, founder of Lumin Consulting, told the E-Commerce Times. However, it’s likely that Facebook will benefit more than AOL from this three-way deal.

Onward Social Networking Soldiers

Weeks ago, Facebook purchased 750 patents from IBM, reportedly covering software and networking. The purchase was made shortly after Yahoo filed a patent suit against it in March. Facebook filed a countersuit against Yahoo earlier this month.

The social networking giant’s activities indicate it’s beefing up its IP portfolio to fend off Yahoo’s and future lawsuits. At the end of 2011, Facebook reportedly had only 56 patents.

“Facebook’s trying to build a patent defense, so it needs patents,” Enderle told the E-Commerce Times.”

Who Friends Whom More?

Microsoft invested $240 million in Facebook back in 2007. Facebook uses Microsoft’s Bing search technology. It also employs video chat technology from Skype, which Microsoft bought last year.

However, Yahoo and Microsoft implemented a Search Alliance back in 2010. This combines search ad inventory from the companies and their partners.

Microsoft obtained an exclusive 10-year license to certain Yahoo search technologies and will manage the technology platforms that deliver the search results. The platforms will use Redmond’s Bing and AdCenter technology.

Confusion to the Enemy

Microsoft and Yahoo have a common enemy — Google. The speculation when Redmond purchased AOL’s IP was that it was bulking up its own IP war chest to counter Google’s inroads into its business.

All three companies “might look to recoup some of their costs by suing Google,” Enderle speculated. Also, if Facebook uses the patents it’s purchasing from Microsoft to fight Yahoo, it’ll “show AOL what it can do if it’s going to sue Yahoo in its turn.”

Microsoft spokesperson Annie Truong declined to give the E-Commerce Times further comment beyond the company’s press release. Facebook did not respond to our request for comment.

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