Redmond, Washington — In a surprising twist of events software monopolists Microsoft trumped Amazon, eBay and other tech moguls, opened up its wallet to grab 800 patents and patent applications, with its more than $1 billion purchase of the majority of AOL Inc.’s patent trove.
AOL Inc., under pressure from nagging shareholders to make changes as revenue shrinks, on Monday announced plans to sell and license more than 800 patents to Microsoft Corp. in a transaction valued at $1.06 billion, triggering its biggest stock gain in two years, giving the struggling Internet pioneer a needed cash jolt to its financials as it seeks to fend off pressure from shareholders.
Recently, AOL has been looking for prospective buyers for its patents noting, “We continue to hold a valuable patent portfolio as highlighted by the license we entered into with Microsoft,” said Tim Armstrong, AOL’s chairman. AOL’s patent sale and licensing with Microsoft “unlocks current dollar value for our shareholders and enables AOL to continue to aggressively execute on our strategy to create long-term shareholder value.”
Commenting on the deal, a distinguished industry analyst noted–“AOL has most of the early core patents that covered social media networking and most of the browser patents that Microsoft did not have,” said analyst Rob Enderle. “The combination could be used to slam Google in similar areas and protect Microsoft partner Facebook.”
Describing the deal with excitement, Microsoft general counsel Brad Smith said in the statement that the software giant is getting “a valuable portfolio that we have been following for years and analyzing in detail for several months.”
He added Microsoft “was able to accomplish its two primary goals: obtaining a durable license to the full AOL portfolio and ownership of certain patents that complement our existing portfolio.”
Moreover, the sale consists of technology rights from AOL’s current and former businesses, ranging from Netscape, ICQ and MapQuest to CompuServe, Advertising.com and others, according to a source close to the matter.
The sale process, which AOL Chief Executive Armstrong described as a “full-fledge dynamic auction,” started last fall after board approval. Armstrong said he communicated with Microsoft Chief Executive Steve Ballmer alerting him of the decision to sell the patents.
Additionally, the auction also contained e-commerce companies Amazon and eBay, both of which have been largely absent from the recent patent wars, as well as Google and Facebook, according to the source.
In addition, AOL said that after the deal is finalized, it will continue to hold “a vital patent portfolio of over 300 patents and patent applications spanning core and strategic technologies, including advertising, search, content generation/management, social networking, mapping, multimedia/streaming, and security among others.” It has also agreed to sign a license to use the patents that it is selling to Microsoft.
Anyway, for Microsoft, the temptation to spending $1 billion on patents is clear. The software company has realized that in order to compete with arch-nemesis Google, it will need to have more patents to incorporate into its own technologies or to license to competitors.
And even with a cool billion, the deal might actually be a bargain. It is no secret that Microsoft has been eyeing online firms to acquire, Yahoo being chief among them, so it could increase its presence on the Web. By acquiring AOL’s patents–arguably the most important aspect of its business–Microsoft has been able to sidestep a full buyout that would have potentially cost it several billion dollars more.
AOL said it intends “to return a significant portion of the sale proceeds to shareholders and will determine the most efficient and effective method to do so prior to conclusion of the transaction.”
News of the deal, which is scheduled for completion by the end of 2012, sent AOL share prices soaring 42 percent Monday morning.