Wall Street cheered AOL’s deal to sell $1 billion worth of patents to Microsoft, sending the onetime Internet pioneer’s stock soaring over 40% Monday to levels not seen in nearly two years. For Microsoft, the deal highlights the premium that tech companies are willing to pay in order to bolster their intellectual property position and protect themselves as patent litigation continues to escalate across the tech industry.
Monday’s deal is part of a larger conflict over intellectual property being waged among some of the biggest names in technology — both on the software and hardware side. Patents have become tools for corporate warfare, devices to extract licensing fees from rivals and assert ownership over key aspects of widely-used technologies like mobile computing, web advertising and social networking.
AOL is selling over 800 of its patents to Microsoft — and granting a non-exclusive license to the software giant for 300 more — for $1.056 billion in cash. The companies didn’t disclose the specific nature of the patents, but said the patents span “core and strategic technologies including advertising, search, content generation/management, social networking, mapping, multimedia/streaming, and security among others.” Importantly, as part of the deal, AOL also receives a license to the patents being sold to Microsoft.
One reason why AOL’s stock may be soaring today is that investors hadn’t expected the company’s patents to fetch such a lofty price. As recently as late last month, AOL’s patent portfolio had been valued at $290 million, according to one expert who told Bloomberg that “most of AOL’s patents are not commercially viable, or junk grade.”
Junk or not junk, Microsoft was clearly willing to pay up for them. “It’s a great deal for AOL,” Clayton Moran, an analyst with Benchmark, told Reuters. “Investors had anticipated little to no value for the portfolio – a few hundred million at the most.”
AOL has been under pressure lately to generate more value for shareholders, and Monday’s deal has clearly pleased investors. According to Reuters, both Google and Facebook participated in AOL’s patent auction, which also may have helped drive the ultimate price of the portfolio.
“This is a valuable portfolio that we have been following for years and analyzing in detail for several months,” Brad Smith, Microsoft’s General Counsel, said in a 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.”