UPDATED 14:40 EDT / APRIL 23 2012

The $550M Patent Trade Off: From AOL to Microsoft to Facebook

Microsoft and Facebook have reached an important agreement today that gives the social network access to a large number of strategic patents. Microsoft is selling a portion of the patents to Facebook that the software company recently acquired from AOL. AOL announced in early April their plans to sell most of their patents for around $1 billion.

Per the agreement, Facebook will obtain ownership of about 650 patents, and AOL-appropriated applications and license applications will remain the property of Microsoft. Microsoft will continue to retain the ownership of the remaining 275 AOL patents. In addition, Microsoft and Facebook have granted each other rights to share the portfolio.

“Today’s agreement with Facebook enables us to recoup over half of our costs while achieving our goals from the AOL auction,” said Brad Smith, executive vice president and general counsel, Microsoft. “As we said earlier this month, we had submitted the winning AOL bid in order to obtain a durable license to the full AOL portfolio and ownership of certain patents that complement our existing portfolio.”

Facebook is preparing to make a big jump in the coming weeks as it prepares for an IPO. The company has been very aggressive in strengthening its role and try to block competitors. Earlier last month, Facebook bought 750 patents from IBM ranging from search to semiconductors technology, and then the acquisition of popular social photo sharing application Instagram for $1 billion.

The move is significant for Facebook. The social network’s access to the right patents ensures that the group can now use its proprietary portfolio against its legal challenges against Yahoo. Yahoo took Facebook to court claiming that Facebook violated some of their core intellectual properties, which were issued from 1999 to 2010 and cover advertising, privacy, customization, social networking and messaging.

“Today’s agreement with Microsoft represents an important acquisition for Facebook,” said Ted Ullyot, general counsel of the social network. “This is another significant step in our ongoing process of building an intellectual property portfolio to protect Facebook’s interests over the long term.”

Microsoft made a strategic move of its own with the sale of these patents to Facebook. First, the software giant retains access to patent technologies, and has recouped half of its costs for he portfolio.  Second, the agreement will further strengthen Microsoft and Facebook’s existing partnership to determine best possible way to create a powerful social search in their combined efforts to compete against Google.


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