Facebook Said to Have Bid for AOL Patents Before Microsoft's Win
Facebook Inc. (FB), the biggest social- networking service, made an offer for AOL Inc. (AOL)'s patent portfolio before losing out to Microsoft Corp. (MSFT)'s $1.06 billion bid, two people with knowledge of the matter said.
Context & Ripple Effects
When AOL sold more than 800 patents to Microsoft in a $1 billion-plus cash deal earlier this month [[a:1195194]], the assumption was a two-party sale; Bloomberg now reports, citing two people with knowledge of the matter (unconfirmed by either company), that Facebook had also made an offer before losing to Microsoft's $1.06 billion bid. Analysts at CNET had already flagged the depth of Microsoft's commitment in asking why Microsoft spent $1 billion on AOL's patents.
The report lands at a delicate moment: Facebook is preparing a NASDAQ listing, with sources pointing to a May IPO date, and this is the second time Microsoft has beaten it in an auction — the first being the 2007 contest in which Microsoft paid $240 million for a stake after winning the bidding battle over the young social network.
First-order effects
- Microsoft exits the auction holding the AOL portfolio Facebook reportedly wanted, converting its $1.06 billion outlay into bargaining power over a soon-to-be-public company that remains exposed on patents.
- Facebook heads into its IPO window without the defensive portfolio it reportedly sought, having already committed roughly $1 billion to the Instagram acquisition in the same month.
Second-order effects
- With Facebook revealed as an underbidder, Microsoft gains leverage in any future licensing negotiation between the two companies, since Facebook would be buying back access to patents it tried to own outright.
- A reported losing bid from a buyer of Facebook's scale signals deeper demand than the sale price alone showed, raising reserve expectations for the next large legacy portfolio to hit the market.
Third-order effects
- If pre-IPO companies treat patent portfolios as mandatory defensive purchases, late-stage startups will keep paying nine-figure sums for legal armor rather than product — and incumbents like Microsoft, sitting on acquired portfolios, become the tollkeepers of the IPO runway.
The trend: Patent portfolios are being repriced as pre-IPO defensive infrastructure, with deep-pocketed incumbents winning the auctions that cash-rich but patent-light startups lose.