Larry, Moe and Curly? Why Facebook Just Bought Microsoft's Recently Purchased AOL Patents

Ok - this could be one of two things: a brilliantly conceived strategic repositioning managed simultaneously by three companies working in concert.

Or a promotional gambit for the new Three Stooges movie.

When we last saw our protagonists, Microsoft had bought @ a billion dollars worth of AOL patents, while Facebook had bought Instagram. But that was so last week.

This week, Microsoft has sold some of those patents to Facebook for $550 billion. AOL retains an interest in the patent use no matter who the owner is. So Facebook, Microsoft and AOL all own licenses to the same 650 patents. And Instagram, as of this writing, has stayed bought.

Inquiring minds want to know who is doing what to whom.

One suspects that they each are protecting core interests, hoping to gain a bit of advantage and thwarting the ambitions of a hated rival. Facebook wants to dominate social and is battling with Yahoo. Microsoft is concerned with Google's next move and is looking for some competitive juice. AOL is just hoping to survive til next month. Facebook had been outbid for the AOL patents by Microsoft so grabbed some of what it wanted in the aftermarket.

A fairer description of this set of transactions is three-dimensional chess. But even that sounds like something with which Moe, Larry and Curly could have fun. JL

Carl Franzen reports in TPM:

Facebook just can’t stop making news in the run up to its initial public offering: On Monday, the world’s largest social network announced that it was purchasing 650 various software patents for a cool $550 million in cash from Microsoft, which had in turn just purchased those very patents, plus hundreds more, from AOL.

The game of patent hot potato also nets Facebook a license to all the remaining Web software patents that Microsoft agreed to purchase from AOL for $1.056 billion in cash.The news comes at an especially interesting time for Facebook given that the company spent a cumulative $1 billion in cash and stock on buying the popular smartphone photo-editing and sharing app Instagram two weeks to the day prior.
In total, Facebook has spent over a whopping $1.5 billion on these two transactions in the past two weeks, a sign that the young company won’t hesitate to throw money around on what it sees as important strategic purchases. The amount represents 40 percent of the total $3.9 billion Facebook reported in liquid cash and cash assets in its documentation with the SEC.

Facebook stated in its announcement Monday that Microsoft had purchased 925 patents or patent applications from AOL, a different figure than the 800 patents AOL originally quoted to employees and shareholders in announcing the initial sale of its intellectual property to Microsoft on April 9.

Facebook said its purchase leaves Microsoft with just 275 of the total group of patents that it had purchased from AOL for $1.056 billion.

At the same time, Microsoft retains a license to use all of the 650 patents it just agreed to sell to Facebook.

Because AOL also made a perpetual license to its sold patents part of the deal for selling them in the first place, AOL also shares the rights to all of these patents, too.

That means now Facebook, Microsoft and AOL all have the rights to the same group of 650 patents, a three-way sharing of intellectual property that is in essence, a legalistic version of the old cold-war “mutually assured destruction paradigm.”

Now that all three companies share a bulk of the same patents, they can’t sue one another for infringement of those patents. Although, it is worth noting that AOL held onto 300 patents, which it licensed to Microsoft, but which Facebook does not have.

In an added twist, Facebook had reportedly tried to buy the patents from AOL directly, bypassing Microsoft, but was allegedly outbid in a fiercely competitive auction, according to Bloomberg.

Microsoft, for its part, said that it had planned to flip the patents all along: “That was our plan from the day we went into the auction,” Microsoft attorney Brad Smith told All Things D in an interview on Monday.

Still there was no mistaking Facebook’s delight at boosting its intellectual property war chest. As Facebook quoted its attorney in the announcement of the deal:

“Today’s agreement with Microsoft represents an important acquisition for Facebook,” said Ted Ullyot, general counsel, Facebook. “This is another significant step in our ongoing process of building an intellectual property portfolio to protect Facebook’s interests over the long term.” And though nobody at Facebook mentioned the name specifically, it is difficult to separate Facebook’s massive patent purchase from its current ongoing lawsuit with Yahoo, which sued Facebook on April 12 for allegedly infringing on 10 Yahoo patents. The suit was widely decried as dishonorable and a desperation move out of the fading 1990s Web portal giant, coming as it did in the run-up to Facebook’s hotly anticipated IPO.

Facebook later hit back with a countersuit alleging Yahoo violated 10 of its patents.

Meanwhile, Microsoft has business relationships with both sides in that fight: Microsoft invested $240 million in Facebook in 2007, for a small but significant share in the company. Microsoft also is the official search partner of Yahoo, as Microsoft’s Bing technology underpins Yahoo’s search engine.

Late update: Facebook’s total patent portfolio includes an estimated 1,400 or more patents, according to TechCrunch’s Josh Constine, who also explains that the recently acquired batch includes patents covering “email, instant messaging, web browsing, search, ads, mobile, & ecommerce.”