Microsoft To Sell AOL Patents to Facebook for $550 Million

Microsoft and Facebook have inked a deal in which the social networking giant will pay Microsoft $550 million in cash for patents recently purchased from AOL.

Earlier this month, Microsoft won a bid to purchase 925 of AOL's U.S. patents for $1.06 billion, as well as acquired the licensing rights to 300 AOL patents that weren't sold at the time. Under its new agreement with Facebook, announced Monday, Microsoft will sell 650 of its AOL patents to the social networking company, but Microsoft will retain the ability to license those patents from Facebook.

In the end, Microsoft kept just 275 of the patents it bought from AOL. The sale to Facebook was explained as being consistent with Microsoft's original motivation of getting licensing access to AOL's patented technologies, according to Brad Smith, Microsoft general counsel and executive vice president for legal and corporate affairs.

"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," Smith explained in a released statement. He added that the deal with Facebook lets Microsoft "recoup over half of our costs."

Facebook General Counsel Ted Ullyot stated that the company carried out the patents deal with Microsoft to build up its intellectual property and support long-term interests.

The deal is still undergoing regulatory approvals, but it was transacted relatively quickly. Just 10 days after Microsoft's announced acquisition of the AOL patents on April 9, rumors were floating in a Bloomberg article that Facebook was considering buying them from Microsoft. Facebook originally had bid for the AOL patents, but its offer was too low, according to the article. Facebook has purchased 750 patents from IBM and it's currently fending off an intellectual property dispute with Yahoo, according to Bloomberg's description.

In addition, Facebook announced in early April that it was buying Instagram in a $1 billion cash plus shares deal. Instagram makes a photo-sharing application for mobile devices.

The AOL patents haven't been described, but AOL stated that they were associated with a subsidiary that was unprofitable. It's speculated that AOL sold patents associated with its Netscape acquisition, announced back in 1998.

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