Microsoft Plays Facebook and AOL For Patent Treasure Trove

Old Dog Teaches New Dog Old Tricks

The new mantra in tech seems to be "my patent trove is bigger than your patent trove" and in patents anyway, it would seem that size does matter. So with that in mind it seems that Microsoft, the old dog in the tech business has taught the young whippersnapper Facebook  a thing or two about how the game is played. And while Microsoft was having its patent cake and eating it too, the new schleprock of the tech scene Yahoo seems to be once again on the outside looking in.

Microsoft has been buying up patents for some time now. The Novell patent portfolio is one where they teamed up with Apple, Oracle and EMC in an unholy alliance to buy Novell's patents. They also bought the patents of bankrupt Nortel in another consortium type of deal. Now last week while everyone was gaga about Facebook paying a billion dollars for Instagram, Microsoft came in and swooped up the AOL patents.  Putting all of these patents together, along with patents that Microsoft already owned gives Redmond a huge stockpile of chips to play in the patent wars which are raging in tech right now.

The case of the AOL patents though is a textbook example of how to play the game.  Microsoft came in with the winning bid of just over 1 billion dollars. For that they not only bought outright about 925 patents from AOL but also were granted a license (which in these cases is an unlimited get out of jail free card) to another 300 patents that AOL retained. So all together Microsoft has license to over 1200 new patents in a wide variety of areas.

The patents are in the areas of mobile services, cell phone handsets, advertising and e-commerce. They include technology AOL inherited from several acquisitions including: Netscape,ICQ, MapQuest and CompuServe. I wish I could tell you more about which patents these are and what they cover, but details have not been released yet.

So Microsoft outbid Facebook, Ebay and Amazon reportedly for these patents.  Now that they bought them, what did that wily Steve Ballmer do? He sold most of them to Facebook who are desperate for a deep patent portfolio themselves for $550m. Roughly recouping half of what they paid. But in selling them to Facebook, Microsoft was sure to retain a license to all of those patents. So Microsoft gets the protection of all of those patents. They retain about another 275 patents for themselves, plus the license to the 300 AOL still has. So for about 550m, Microsoft owns or licenses over 1200 patents!

There is another aspect to the deal as well. By buying and licensing all of these patents they also deprive Yahoo, Amazon and most of all Google from the use or protection of these patents as well. So that is yet another positive in the deal for Microsoft.  No matter how you slice this one it seems that Ballmer can still teach these up and comers a thing or two when it comes to patent deals. For Yahoo who threw down the gauntlet against Facebook and seemed to want to rely on their patents to perserve their business, they are in danger of being outflanked by Facebook and some of these other more agressive players.

For Facebook with their IPO almost here, they now add these patents to another750 patents they bought from IBM in March. Along with the Instagram deal, Facebook is spending money almost as quickly as they will bring it in when the stock goes public. They of course are involved in a patent war with Yahoo, with suits and counter-suits flying.

What a shame that it looks like those who hold the patents will be the winners in these new tech wars. Generally innovation and consumers wind up being the losers.  While I understand that those who invent and design should be able to reap the benefit of thier labor, having large companies snap up patents by the bushel to use as chips in a high stakes poker game is not what the whole patent system is designed for.

For Microsoft, they play the patent game like the old pros they are and are poised to be a winner in these wars. However, I for one would rather see Micorosft hording patents for innovations they developed and brought to market instead of just buying up other peoples patents.

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