AOL does $1.2b deal with Microsoft as patent war heats up

Faltering internet icon AOL was able to squeeze out more than US$1 billion ($1.2 billion) from Microsoft for a trove of 800 patents in an auction, the latest sign of just how valuable such portfolios can be for the world's biggest technology companies.

"There is a fight for market share occurring on multiple fronts technology, patents, advertising," said Colin Gillis, an analyst with BGC Financial who covers Microsoft. "Microsoft, more so than others out there, has been [using] its patent portfolio as a way to generate licence fees. This should strengthen that."

Microsoft refused to say what the patents cover. Benchmark analyst Clayton Moran said they revolve around internet technology, including advertising, search and mapping. This would help Microsoft go up against Google, a big rival that is ahead of it in all three areas.

Patents are useful both for attack - for suing competitors - and for defence - for warding off lawsuits with threats of countersuits. Facebook recently bought 750 patents from IBM, a move that likely helped the company defend itself after Yahoo accused it of violating 10 Yahoo patents.

Software patents can have broad applications, and thousands of patents can apply to a complicated product like a cellphone.

Google is buying phone maker Motorola for US$12.5 billion, in large part, to get hold of its patents.

AOL's shares surged to their highest level in more than a year following the announcement.

AOL said it plans to return some of the sale proceeds to its shareholders.

After the sale, AOL said it would still hold more than 300 patents and applications covering a variety of technologies, including advertising, search, content generation, social networking, mapping, multimedia, and security among others.

AOL also received a licence to use the patents it sold to Microsoft. AOL owns news sites such as Huffington Post, Engadget and Techcrunch, but still makes much of its money by providing dial-up internet access.

- AP

By Barbara Ortutaya