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Facebook, Microsoft strike AOL patent deal

by Olaf de Senerpont Domis | Published April 23, 2012 at 4:12 PM

Facebook Inc. unveiled its second major acquisition this month, announcing Monday, April 23, a $550 million cash agreement to buy a basket of AOL Inc. patents recently acquired by Microsoft Corp.

Under the agreement, Facebook will buy about 650 AOL patents and patent applications from Redmond, Wash.-based Microsoft, in addition to a license to the AOL patents and applications that Microsoft will buy and keep. Microsoft on April 9 unveiled a $1.1 billion agreement to purchase 925 patents and applications from AOL plus a license for 300 additional patents.

"Today's agreement with Facebook enables us to recoup over half of our costs while achieving our goals from the AOL auction," Microsoft general counsel Brad Smith said in a statement.

The deal marks Facebook's second-largest transaction, following on the heels of its announcement April 9 that it would acquire mobile photo-sharing startup Instagram Inc. for $1 billion.

It also builds on Facebook's agreement last month to acquire 750 patents from IBM Corp. for undisclosed terms.

"This is another significant step in our ongoing process of building an intellectual property portfolio to protect Facebook's interests over the long term," Facebook general counsel Ted Ullyot said in a statement Monday.

Buying up patents has become an increasingly important defensive tool for big technology companies. With a relatively small patent portfolio, Facebook is particularly vulnerable. The Palo Alto, Calif.-based social networking giant was sued last month by Yahoo! Inc., which charged Facebook with infringing on several online messaging and advertising patents. Facebook early this month filed counterclaims against Yahoo!, arguing that the Sunnyvale, Calif.-based company infringed on 10 Facebook patents.

Yahoo! issued a statement Monday responding to the news of Facebook's purchase of the AOL patents.

"Companies who purchase patents are often working from a position of weakness and take these actions to strengthen their portfolio. We see today's announcement as a validation of our case against Facebook," it said.

Other companies have been spending billions on patents. Last year, a consortium led by Apple Inc. paid $4.5 billion for patents from Nortel Networks Inc., while Google Inc. agreed to buy Motorola Mobility Holdings Inc. for $12.5 billion in a deal largely driven by the search giant's interest in the handset maker's wireless patent portfolio.

After the Facebook deal closes, Microsoft, which owns a 1.2% stake in Facebook, will retain ownership of about 275 AOL patents and applications, a license to the patents that Facebook will own, and a license to the 300 patents retained by AOL.

Facebook retained Cooley LLP's Adam Ruttenberg and Fenwick & West LLP's Doug Cogen for legal counsel on the deal. Covington & Burling LLP represented Microsoft.

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Olaf de Senerpont Domis

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