Twitter has acquired more than 900 patents from IBM and the two companies have inked a broad cross licensing deal that heads off a potential intellectual property spat.
The transaction took place in December and financial terms weren't disclosed.
According to Twitter, the deal with IBM will give the company "greater intellectual property protection and gives us freedom of action to innovate."
Twitter said in SEC filings that there was a potential intellectual property issue with IBM. The deal also heads off that scenario. Twitter said (emphasis mine):
Companies in the Internet, technology and media industries own large numbers of patents, copyrights, trademarks and trade secrets, and frequently enter into litigation based on allegations of infringement, misappropriation or other violations of intellectual property or other rights. Many companies in these industries, including many of our competitors, have substantially larger patent and intellectual property portfolios than we do, which could make us a target for litigation as we may not be able to assert counterclaims against parties that sue us for patent, or other intellectual property infringement. In addition, various “non-practicing entities” that own patents and other intellectual property rights often attempt to aggressively assert claims in order to extract value from technology companies. From time to time we receive claims from third parties which allege that we have infringed upon their intellectual property rights. In this regard, we recently received a letter from International Business Machines Corporation, or IBM, alleging that we infringe on at least three U.S. patents held by IBM, and inviting us to negotiate a business resolution of the allegations. The three patents specifically identified by IBM in the letter were U.S. Patent No. 6,957,224: Efficient retrieval of uniform resource locators, U.S. Patent No. 7,072,849: Method for presenting advertising in an interactive service and U.S. Patent No. 7,099,862: Programmatic discovery of common contacts. Based upon our preliminary review of these patents, we believe we have meritorious defenses to IBM’s allegations, although there can be no assurance that we will be successful in defending against these allegations or reaching a business resolution that is satisfactory to us...
We presently are involved in a number of intellectual property lawsuits, and as we face increasing competition and gain an increasingly high profile, we expect the number of patent and other intellectual property claims against us to grow.
IBM has a broad patent portfolio and licenses intellectual property often. IBM had the most patents in the U.S. in 2013 and has held that crown for decades. Big Blue spends about 6 percent of revenue on research and development every year.
For Twitter---a small company with a fast growing market cap---licensing IBM's patents do give it some protection. Young companies don't have the intellectual property history and portfolio to successfully defend themselves well in court.
The most high profile exhibit of buying patents to curb future lawsuits would be Google's purchase of Motorola Mobility.