Monday, April 9, 2012

Microsoft pays AOL $1.1 billion for 800 patents (and Netscape)

I’m sure a lot of people still associate AOL with free CDs, instant messaging, and being their ISP back in the days before broadband. But while the company is now focused on making money online through portals and content, it has quite the hoard of patents. Or at least it did. 800 of some 1,200 patents the company holds have just been sold to Microsoft.

The deal is good news for both companies. AOL is receiving $1.1 billion and a perpetual license for all the patents it has sold. Microsoft gets a big pile of potentially very useful patents in return.

We’ve all seen how Microsoft has used patents to make money from Android, so spending $1.1 billion to secure these new patents surely means they have similar plans to claw back the cost of the purchase.

The patents fall within the categories of advertising, content generation, content management, social networking, mapping, streaming media, search, and security. Most of those categories could certainly be applied to Google’s services, and if Microsoft can find a way to utilize them against their biggest rival, I’m sure it won’t take long for the paperwork to be sent to Mountain View providing licensing terms.

Alternatively, Microsoft may view this as a buy for protection. If anyone attempts to sue the company for patent infringement, they now have more ammunition to fire back in defense. It seems increasingly like owning patents is what you need to fight patent lawsuits, and Google has demonstrated this recently with its $12.5 billion acquisition of Motorola.

One thing AOL doesn’t mention as part of its press release is where all there patents come from. Well, back in 1998 AOL made an acquisition in the form of Netscape Communications. The patent sale includes stock from an AOL subsidiary, which is thought to be Netscape. So Microsoft now effectively owns Netscape in all but name, as AOL has apparently held on to the brand and the businesses.

One potential beneficiary from this patent deal is Facebook. AOL could have used the social networking patents against them, but Microsoft owns part of Facebook so that will no longer happen.