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Microsoft To Buy 800 AOL Patents for $1 Billion

Microsoft intends to buy more than 800 patents from AOL Inc. for $1.056 billion in cash, the two companies announced on Monday.

The deal involves the sale of an unnamed AOL subsidiary that is performing at a loss. A Microsoft spokesperson declined to provide information that would identify the subsidiary's name or the nature of the patents sold. However, one rumor is that Microsoft will acquire patents associated with once-dominant browser maker Netscape.

AOL indicated that the sale of the patents with the underperforming subsidiary was designed as a tax strategy and that AOL planned to release some of the sales proceeds to its shareholders. The deal is described as a definitive agreement. Should Microsoft withdraw after two day's time, it could be hit with a $211 million termination fee.

Some financial analysts view the assets as being overvalued, estimating their worth at approximately $300 million. AOL may have been prodded to sell after being pressured by AOL shareholder Starboard Value LP to deliver better value, according to a Reuters' account. Microsoft and AOL expect the deal to be completed by year's end, pending regulatory approvals.

AOL's stock increased on Monday to $24.85 per share and then closed at $18.42 per share.

Microsoft has had its eyes trained on acquiring these patents for years, according to Brad Smith, general counsel and executive vice president for legal and corporate affairs at Microsoft.

"This is a valuable portfolio that we have been following for years and analyzing in detail for several months," Smith said in a released statement. "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."

If the patents are associated with AOL's Netscape holdings, it would represent a final endgame of sorts for a long-defunct browser that once overshadowed Microsoft's current frontrunner, Internet Explorer. AOL announced its purchase plans for Netscape in the fall of 1998, but it gradually wound down the original developer team's efforts on the browser over subsequent years. Netscape diminished in use. However, code for the browser previously had been forked into an open source Mozilla Project in January of 1998. The Mozilla Corp. was founded by the Project to foster that code, which resulted in the Firefox browser that's in use today.

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About the Author

Kurt Mackie is senior news producer for the 1105 Enterprise Computing Group.