When speculators start flipping properties, you know that the real estate market is hotter than hot. But we haven’t seen much property flipping in the intellectual property market — until now. In an unexpected move, Microsoft unloaded much of the patent portfolio it has recently acquired from AOL to Facebook. But was it really that unexpected?
The deal between Microsoft and Facebook should not come as a surprise. Both companies were intimately familiar with these patents, as both had been studying them for a number of months while considering a potential acquisition. Many people actually expected Facebook to acquire this portfolio because they seemed to need it most and for several reasons:
(a) Facebook is defending a patent infringement lawsuit from Yahoo and needs ammunition to strike back, which they recently did using several patents acquired from IBM. They need more such patents.
(b) Facebook is a defendant in a number of other patent disputes and can expect to continue to be the target of patent assertions in the future. They need as many patents as they can get their hands on to countersue those who sue them (unless the plaintiff is a non-practicing entity, in which case they would be immune to a countersuit) and, ultimately, when they achieve a critical mass of patents, they can hope to keep would-be plaintiffs at bay. One can only achieve a sort of patent “détente” if both parties are backed by the kind of patent ammunition arsenal that could lead to assured mutual destruction.
(c) Facebook has few patents of their own, so they are forced to actively acquire patents. They’ve done so recently, for example, by buying a thousand patents from IBM.
For all these reasons, Facebook had been considered the most logical candidate to acquire the AOL portfolio.
So when Microsoft announced that they had acquired the AOL patents for a whopping $1.1 billion dollars, it raised a few eyebrows. The explanation, however, is simple: Microsoft was interested primarily in the search patents that came to AOL by way of Netscape. Remember, Netscape was a company that developed one of the first browsers. In the process, they got some of the first patents on searching technology. They were early in the game and some of these patents are pretty basic for internet searching. Remember, also, that Google is the archrival of Microsoft — and by acquiring these patents, Microsoft just raised the patent threat to Google to the orange level.
Selling most of the AOL patents to Facebook was a brilliant move on the part of Microsoft. Firstly, they kept the Netscape patents (which was why they bought the AOL portfolio) to themselves. Secondly, they retained a non-exclusive license under all patents they flipped to Facebook, so these patents can never be asserted against them in the future. And they recouped half of the investment. It’s a very elegant transaction indeed.
Are we going to see more patent flipping? Time will tell. Meanwhile, patents just keep rising in value and will likely continue to rise, as long as the demand for patent ammunition continues to outpace the supply.
Facebook is going to need those patents, for monetization purposes. The company relies heavily on a single product that's quickly wearing out its welcome, while newer arrivals on the scene (i.e., Twitter) are giving them a serious run for their money.