Why Facebook is buying 650 AOL patents from Microsoft

Update - Yahoo: Facebook’s AOL patent deal with Microsoft show it is weak

As expected, Facebook and Microsoft today announced Menlo Park will pay Redmond $550 million for a portion of the 925 U.S. patents and patent applications it recently acquired from AOL for $1.056 billion. Microsoft will assign to Facebook the right to purchase 650 patents and patent applications of the total, plus a license to the AOL patents and applications that Microsoft will purchase and own. The news was broken by Bloomberg, which was subsequently followed by a press release sent out by both Facebook and Microsoft.

I say "as expected" because I wrote the following just a few days ago:

Here's the interesting part. Microsoft reportedly intends to sell most of the newly acquired portfolio because it doesn't consider all of the 800 patents valuable to its patent portfolio. In other words, Facebook could still get some of the patents it was after. After all, the two companies are more friends than enemies.

While the 800 estimate is no longer valid, everything else is. Microsoft will retain ownership of approximately 275 AOL patents and applications, a license to the approximately 650 AOL patents and applications that will now be owned by Facebook, and a license to approximately 300 patents that AOL did not sell in its auction.

Facebook will meanwhile get the 650 patents or so that it was after. Facebook will not, however, get a license to the 300 patents AOL still retains and which Microsoft has licensed. To license those 300 patents, Facebook will have to go directly to AOL. If it's interested, Facebook will do just that.

"Today's agreement with Microsoft represents an important acquisition for Facebook," Ted Ullyot, general counsel at Facebook, said 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."

So, what does this mean? Well, first of all I can update the number of patents that Facebook will soon own to over 1,000. Late last month, I counted Facebook owned some 812 patents. With this Microsoft deal, Facebook has almost doubled that number.

More importantly though, these patents will likely end up being a big part of the social networking giant's current and future patent lawsuits. Facebook has been slowly looking to beef up its patent portfolio, but with public companies like Yahoo and Mitel targeting it for patent infringement, Menlo Park has stepped up its game.

I don't believe it's a coincidence that AOL and Yahoo are such similar companies. Both are/were online giants, and both have been superseded by Facebook. There is no doubt in my mind that this is exactly why Facebook is so interested in AOL's patents: a lot of them cover technologies that Facebook uses, and the rest likely cover technologies used by companies that want to sue or are already suing Facebook.

As such, I believe Facebook's lawyers are already going through the patents and deciding which ones will be most useful in helping the social networking giant fight back against patent trolls. This is the main reason Facebook is buying these patents from Microsoft.

Facebook's most recent patent purchase was some 750 patents from IBM. Soon Facebook will own 650 more AOL patents, and it's all thanks to Microsoft.

Speaking of which, in a post last month ("Should Microsoft save Facebook from Yahoo?) I said Microsoft would not directly help Facebook:

Microsoft and Yahoo have a patent sharing deal through their 2009 search agreement, which has been extended till 2013. There may not be anything legally stopping Microsoft from helping Facebook, but the software giant's partnership with Yahoo is no joke. Microsoft cares about growing Bing, and it needs Yahoo to fight Google.

Of course it needs Facebook to fight Google as well, but somehow I don't think Microsoft wants to jeopardize either of its partnerships. Maybe Redmond will advise Menlo Park and Sunnyvale on what to do, but I don't think it will take action. Microsoft will probably just sit back and hope they'll work it out.

I was wrong. Only after Microsoft bought AOL's patents and the rumor about Facebook being interested in some of those patents, did I connect the dots. Microsoft found a very clever way to give Facebook a boost, while still getting what it wants (the remaining patents), without damaging its relationship with Yahoo.

Maybe I'm just stubborn, but I would still argue Microsoft is not "directly" helping Facebook. On the other hand, I'll be the first to admit that this is probably the best indirect help Facebook can get.

Since day one, I thought Yahoo suing Facebook was a stupid move and Sunnyvale should reconsider. Then Facebook countersued Yahoo. Now, more than ever, I think Sunnyvale should settle.

Update - Yahoo: Facebook’s AOL patent deal with Microsoft show it is weak

See also:

• How many patents does Facebook own?
• Microsoft adds Facebook video calling to Skype for Windows
• Facebook announces video calling, powered by Skype
• Microsoft pays to put Bing on Facebook logout page
• Bing to use Facebook, Twitter more in fight against Google
• Facebook taps Microsoft Bing for Page content translation
• Microsoft puts Facebook into Bing Bar