The patent wars continue.
Just weeks after AOL CEO Tim Armstrong was quoted as referring to AOL's 800-plus patent portfolio as "beachfront property in East Hampton" and reports surfaced that the company was shopping the collection, AOL sealed a deal with Microsoft worth just over $1bn.
A memo from Tim Armstrong to AOL staff explained the deal and what it means for AOL:
This morning, we announced that we’ve agreed to sell 800 of our patents and their related applications to Microsoft for $1.056 billion in cash. Most importantly, for the future growth trajectory and innovation for our business, we will continue to hold a significant patent portfolio of over 300 patents and patent applications spanning core and strategic technologies, including advertising, search, content generation/management, social networking, mapping, multimedia/streaming and security among others. AOL also received a perpetual license to the patents being sold to Microsoft, which allows us to continue to innovate and drive strategic growth across all areas of our business.
This process of unlocking the value of our patent portfolio, that we began last fall, is a significant example of focusing our time and energy around strengthening our company’s balance sheet and unlocking value for our shareholders. Most importantly, this is another step forward for the comeback of AOL and allows us to remain laser-focused on our strategy and future growth.
While the $1bn haul is good news for AOL, and appears to represent a good deal given that AOL will retain perpetual licenses for the patents sold, it's questionable as to whether the sale is really a "step forward" for the company.
Yes, Microsoft has added money to the bank, but that doesn't mean that AOL will spend it wisely. The company's Patch initiative, which might be referred to as a train wreck in progress, shows that too much money can be a dangerous thing when it's being invested in an unprofitable concept.
The billion-dollar price tag for AOL's patents is a big one, but not an amount that Microsoft executives will lose sleep over. Just how 'good' (read: legitimate) are the AOL patents, many of which cover technologies related to "online communications"? Who knows?
But as we've seen from the Yahoo-Facebook patent lawsuit circus, patents are sort of like guns: much of the time, you don't need to know if they'll actually fire to accomplish what you're looking to accomplish, meaning any gun is a good gun so long as the party staring down the barrel thinks it might fire.