In the murky world of patent litigation, having access to a treasure trove of tech patents means that a company can access considerable source of funding by licensing its patents. These same patents can also function as armour when facing a patent lawsuit, or legal ammunition when suing another firm.    

Microsoft has certainly bolstered itself after entering into a definitive agreement with AOL to purchase 800 patents, along with the relevant patent applications, to the tune of $1.056 billion in cash.

Following this sale, AOL will continue to hold a significant patent portfolio of north of 300 patents and patent applications. These span core and strategic technologies that include advertising, search, social networking, mapping, multimedia/streaming, and security. The New York-based internet services and media company also received a license to the patents that it is selling to Microsoft.

Patent intentions

AOL stated that the company’s management, as well as its Board of Directors (BoD), intends to return a significant chunk of the patent sale proceeds to its shareholders. It will determine the most efficient method to do this before the closing of this transaction (end of 2012).

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

He explained that the combined sale and licensing arrangement unlocks current dollar value for the company’s shareholders, and enables AOL to continue to “aggressively execute on its strategy to create long-term shareholder value.”

Years in the making

“This is a valuable portfolio that we have been following for years and analysing in detail for several months,” added Brad Smith, general counsel and executive vice president of Legal and Corporate Affairs at Microsoft.

“AOL ran a competitive auction and by participating, Microsoft was able to achieve our two primary goals: obtaining a durable license to the full AOL portfolio and ownership of certain patents that complement our existing portfolio,” he concluded.

In related news, Facebook (FB) recently acquired 750 patents from International Business Corp (IBM), right after Yahoo! filed a patent lawsuit against FB, involving ten patents that deal with advertising, privacy, customisation features, messaging as well as social networking.