AOL Sells $1 Billion Worth of Patents to Microsoft

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AOL has faced more than its fair share of financial challenges in recent years as competitive pressures have taken hold. While AOL’s market share may be diminishing, over the years it has built a patent treasure trove that it is now exploiting to raise funds.

AOL announced today that it is selling over 800 patents to Microsoft for the tidy sum of $1.056 billion in cash. Microsoft emerged the winner, after a competitive bidding process. AOL has not publicly disclosed which other firms participated in the bidding process. The patent sale is expected for formally close by the end of the year.

“The agreement with Microsoft represents the culmination of a robust auction process for our patent portfolio,” said Tim Armstrong, AOL’s Chairman and CEO in a statement. “We continue to hold a valuable patent portfolio as highlighted by the license we entered into with Microsoft.”

AOL isn’t selling its entire patent portfolio to Microsoft. AOL will be holding onto 300 patents for itself that cover a wide range of areas including search, security and social networking. Microsoft will also license back to AOL the patents it is acquiring for AOL’s usage.

“The combined sale and licensing arrangement unlocks current dollar value for our shareholders and enables AOL to continue to aggressively execute on our strategy to create long-term shareholder value,” Armstrong said.

The AOL patent sale is particularly interesting as it relates to the current legal situation between Facebook and Yahoo. Yahoo has alleged that Facebook infringes on its intellectual property. Facebook has responded by counter-suing.

The social networking space is one that AOL knows a lot about. Intellectual property analyst Florian Mueller told InternetNews.com that he remembers using AOL a lot in the mid-1990s and it was the world’s first major social network. As for how the patent sale affects the Yahoo-Facebook situation, Mueller does see it as good news.

“This transaction is excellent news for Facebook,” Mueller said. “Other buyers would have had strategic and/or financial motivations to assert these patents aggressively against Facebook, but Microsoft is an ally.”

Mueller also noted that he was surprised that Google didn’t make much more of an effort to buy the AOL patents. Google has been ramping up social networking activities in recent months with the Google Plus network.

Sean Michael Kerner is a senior editor at InternetNews.com, the news service of the IT Business Edge Network, the network for technology professionals Follow him on Twitter @TechJournalist.