Facebook to pay Microsoft $550M for AOL patents

Facebook on Monday continued its latest spending spree by agreeing to pay Microsoft about $550 million for some 650 former AOL patents and patent applications.

The deal comes just a couple of weeks after Facebook agreed to buy mobile photo-sharing app Instagram for about $1 billion.

Earlier this month, Microsoft inked a deal to buy about 925 patents and patent applications from AOL for more than $1 billion in cash.

Microsoft reported today that it will retain ownership of about 275 AOL patents and applications, and retain a license for the approximately 650 AOL patents and applications that Facebook agreed to purchase.

“Today’s agreement with Microsoft represents an important acquisition for Facebook,” said Ted Ullyot, Facebook’s general counsel, in a statement. “This is another significant step in our ongoing process of building an intellectual property portfolio to protect Facebook’s interests over the long term.”

Brad Smith, executive vice president and general counsel for Microsoft, added that “Today’s agreement with Facebook enables us to recoup over half of our costs while achieving our goals from the AOL auction. 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.”

Zeus Kerravala, an analyst with ZK Research, said that while it’s unclear why Microsoft would sell off the patents shortly after buying them, Facebook appears to be stockpiling resources in advance of an initial public offering expected this spring.

“I think this makes Microsoft look like it’s throwing darts,” said Kerravala. “For Facebook, it looks like they’re buying potential.”

He added that Facebook simply may be better positioning itself for the upcoming IPO.

“Facebook has lots of money. What they need is valuation,” said Kerravala.

“Having more patents means they can potentially go after more markets. Since they are buying lots of patents, they can claim that they will be able to move into markets x, y and z at a later date,” he added.

Sharon Gaudin covers the Internet and Web 2.0, emerging technologies, and desktop and laptop chips for Computerworld. Follow Sharon on Twitter at @sgaudin, or subscribe to Sharon’s RSS feed . Her e-mail address is sgaudin@computerworld.com.