Facebook Paying Microsoft $550 Million To Get its Hands on Hundreds of Former AOL Patents
Microsoft and Facebook are about to announce a deal with the social networking giant paying Redmond $550 million for access to more than 600 patents, AllThingsD has learned.
Context & Ripple Effects
Microsoft's more than $1 billion agreement to acquire over 800 AOL patents created a large portfolio that could be redistributed rather than held intact by one buyer. Facebook had been reported as an AOL bidder before Microsoft's win; the companies have now confirmed an agreement for Facebook to buy a $550 million portion of that portfolio.
The transaction also extends a commercial relationship that included Microsoft's 2007 investment in Facebook, but shifts the focus from equity to intellectual-property ownership.
First-order effects
- Facebook gains ownership of a $550 million portion of the AOL portfolio under the companies' definitive agreement.
- Microsoft converts part of the AOL portfolio it agreed to acquire into a sale to Facebook, reducing the amount of those assets it will hold directly.
Second-order effects
- The deal gives Facebook access to patent assets it had reportedly sought in the AOL sale without having to acquire the entire portfolio from AOL.
- AOL's former patent holdings are being divided among major technology companies, making portfolio transactions—not just outright corporate acquisitions—a route to obtain defensive intellectual property.
Third-order effects
- If large portfolios continue to be split among buyers after an auction, patents become a more actively traded strategic asset for companies seeking negotiating leverage and protection from litigation.
- The arrangement points to moat recomposition: control of legacy technology rights can shift between platforms independently of the products and businesses that originally created them.
The trend: Large technology companies are treating patent portfolios as divisible strategic assets, using sales between rivals to reshape their defensive positions.