Facebook Is Said to Buy 750 IBM Patents to Boost Defenses
Facebook Inc. (FB) acquired 750 patents from International Business Machines Corp. (IBM), adding intellectual property that may help it counter allegations of patent infringement, a person with knowledge of the transaction said.
Context & Ripple Effects
Facebook has been building its intellectual property position organically for a year — locking down patents on social gift giving in June 2011 and on digital media tagging in May 2011 — so the reported 750-patent purchase from IBM represents a shift from filing to buying. The timing matters: the company has confirmed an IPO expected to raise at least $5 billion, which would be the largest Internet IPO ever, and public companies make far more attractive litigation targets than private ones.
The story traveled widely on pickup from Bloomberg at outlets including the Wall Street Journal, Ars Technica, and Fast Company, with The Verge adding a reported wrinkle that Yahoo may already hold a license to some of the patents in question — unconfirmed, but if true it would blunt the defensive value of the deal.
First-order effects
- Facebook, still a private company weeks from its confirmed IPO, gains a 750-patent arsenal that gives it countersuit material against anyone alleging infringement — though the transaction remains rumored rather than confirmed by either company.
- IBM converts a block of legacy patents into cash from one of the hottest pre-IPO companies in technology, continuing its long practice of monetizing its research portfolio through licensing and sales.
Second-order effects
- If the deal holds, other consumer-internet companies heading toward the public markets face pressure to buy defensive portfolios of their own, making large incumbent patent holders like IBM the default suppliers of litigation insurance.
- The reported Yahoo license claim means Facebook's new shield may be partial: any rival that already licenses the same IBM patents could sue without exposing itself to countersuit from the newly purchased portfolio.
Third-order effects
- Pre-IPO defensive patent shopping points toward a structural split in the industry, where young platform companies treat third-party patent portfolios as a standard cost of going public and established holders like IBM sit permanently on the selling side of that market.
The trend: Consumer-internet companies preparing for public listings are increasingly buying incumbent patent portfolios as litigation insurance, turning giants like IBM into suppliers of defensive IP.