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Facebook Inc. is beefing up its intellectual property arsenal by paying $550 million for some of the patents Microsoft Corp. recently agreed to buy from AOL Inc.
Facebook, the world’s largest social network, will obtain about 650 AOL patents and applications, as well as a license to AOL patents and applications that Microsoft will purchase and own, the companies said in a statement today.
Patent disputes are increasing in the technology industry as competitors fight over intellectual property rights to key breakthroughs in areas such as mobile technology. Web portal Yahoo! sued Facebook on March 12, alleging that the social network infringed patents covering such functions as Internet advertising and information sharing. Facebook fired back on April 3, accusing Yahoo of infringing on 10 patents through its home page and Flickr photo-sharing service and in ads displayed throughout its site.
Monday’s deal “helps Facebook, hurts Yahoo,” said Brian Wieser, an analyst with Pivotal Research Group. “Yahoo is counting on seeing some money from Facebook, and maybe didn’t expect such vigorous defense.”
The Microsoft transaction would be Facebook’s second major patent acquisition since Yahoo sued. Facebook, based in Menlo Park, California, acquired 750 patents from International Business Machines Corp., a person with knowledge of the matter said on March 22.
Microsoft said earlier this month that it would pay $1.06 billion for a portfolio of AOL’s patents. Under the terms of the auction, companies couldn’t band together to bid jointly, and AOL didn’t permit offers for part of the portfolio, said a person familiar with the matter who declined to be named because the process was private. Microsoft bid with the intention of reselling most of the patents and always considered Facebook the most likely buyer, the person said.
“Anytime someone buys a huge amount of patents, there’s an opportunity to sell the ones you don’t need,” said Ron Laurie, managing director of Inflexion Point Strategy in Palo Alto, Calif., which counsels companies on intellectual property purchases.
It’s likely that the companies in this instance were bidding against one other, said Laurie, who wasn’t involved in the talks. Then, “maybe Facebook said, ‘You buy the patents and we’ll buy the ones we want from you,’” he said.
AOL, under shareholder pressure to make changes as revenue shrinks, sold and licensed more than 800 patents to Microsoft earlier this month. AOL would still hold more than 300 patents and applications after the transaction.
Facebook made an offer for AOL’s patent portfolio before losing out to the Microsoft bid, two people with knowledge of the matter said last week. The proposal by Facebook was too low, those people said.
Microsoft was particularly interested in AOL’s search patents and many of those will probably be among those it retains, a person familiar with the process said Monday. Microsoft expects the transaction to close this year and doesn’t expect regulatory issues with the agreement, the person said.
Even though Microsoft didn’t want to own the majority of the patents, it did want a license to all of them — which it will get through this agreement. Microsoft also would have viewed a purchase by a rival like Google Inc. as negative, the person said.
Facebook has lined up $8 billion of available credit from its IPO underwriters. Like more established technology companies, such as Apple Inc. and Google, it is buying intellectual property to protect itself from patent-infringement litigation.
Facebook in February filed for an initial public offering, seeking to raise $5 billion in what could be the largest Internet IPO on record. The company may seek a valuation of $75 billion to $100 billion, people familiar with the matter have said.
