BREAKINGVIEWS-Microsoft opens pricey new front in patent wars

Mon Apr 9, 2012 6:03pm BST

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(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)

By Robert Cyran

NEW YORK, April 9 (Reuters Breakingviews) - Microsoft (MSFT.O) has opened up a pricey new front in the patent wars. The software giant is spending $1.1 billion to buy over 800 of them from AOL (AOL.N). At more than $1 million apiece, it tops even the huge rates paid recently for other intellectual property. This first salvo in the Internet space throws down the gauntlet at Google (GOOG.O) and Facebook.

Last year, the action was centered around smartphones. For reasons both offensive and defensive, Microsoft, Apple (AAPL.O) and Google spent astonishing sums to acquire related patents. Nortel’s (NRTLQ.PK) were sold from a bankruptcy auction for about $750,000 each, while on average Motorola Mobility’s (MMI.N) and Novell’s fetched approximately $500,000.

The prices weren’t justified on the licensing fees the patents could generate. Rather, they reflected a certain strategic value. Patent owners can sue rivals, exclude certain technologies from appearing on devices manufactured by other companies or extract licensing fees for their use. Further, tech is often a winner-take-all game, and mobility is the big shift taking place. So buyers were willing to pay over the odds to keep key patents from competitors.

Microsoft’s acquisition of AOL’s IP escalates the dynamic – and in a new area. Not only is it paying more per patent, but it is buying inventions related to instant messaging, social networking, search, security and advertising. Those sorts of technologies represent much of the future for Google and Facebook.

Many of these particular patents could prove tactically significant. In its day, AOL was an Internet king and along the way took over early rivals to the throne, including MapQuest, CompuServe and Netscape. More than just an intriguing page of antitrust history, those firms could leave behind ammunition in the ongoing brawls over Web browser displays and maps.

The price and nature of the AOL sale strongly suggests the patent conflicts are spreading. Relatively patent-poor newcomers like Google and Facebook find themselves on the back foot in this arena. Other battle-tested webbies, like Yahoo (YHOO.O), however, could find themselves with just a bit of fight left yet.

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CONTEXT NEWS

- AOL said on April 9 it would sell over 800 patents to Microsoft and grant the software giant non-exclusive license to the more than 300 patents it retains for $1.1 billion. AOL plans to use about $40 million of deferred tax assets to offset taxes incurred from the deal.

- The Internet firm said it plans to return a significant portion of the proceeds to shareholders. Including the sale proceeds, AOL would have about $15 a share of cash on hand. AOL shares surged 42 percent on the news to more than $26 per share.

- Company statement: link.reuters.com/wun57s

- Reuters: AOL to sell 800 patents to Microsoft for $1 bln [ID:nL3E8F945C]

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- For previous columns by the author, Reuters customers can click on [CYRAN/]

(Editing by Jeffrey Goldfarb and Martin Langfield)

((robert.cyran@thomsonreuters.com)) Keywords: BREAKINGVIEWS AOL/

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