Microsoft has just splashed out over a $1 billion to purchase patents from AOL. The deal worth $1.056 billion will be sealed by the end of 2012 and AOL will exchange 300 patents to Microsoft who will be able to use them under a non-exclusive license.
The patents and patent applications relate to advertising, content generation, content management, multimedia and security. Tim Armstrong, AOL’s Chairman and CEO explains:
“We continue to hold a valuable patent portfolio as highlighted by the license we entered into with Microsoft. The combined sale and licensing arrangement unlocks current dollar value for our shareholders and enables AOL to continue to aggressively execute on our strategy to create long-term shareholder value.”
Strategic Implications for Microsoft
This acquisition is a strategic move for Microsoft, allowing the tech giant to bolster its intellectual property portfolio significantly. By acquiring these patents, Microsoft can enhance its technological capabilities in key areas such as advertising, which is crucial for its Bing search engine and other online services. The content generation and management patents will likely benefit Microsoft’s Office suite and cloud services, while multimedia and security patents could enhance its Xbox and Windows platforms.
Moreover, the non-exclusive nature of the license means that Microsoft can leverage these patents without the risk of litigation from AOL, providing a layer of security and freedom to innovate. This move also positions Microsoft more competitively against other tech giants like Google and Apple, who are also aggressively expanding their patent portfolios.
Financial and Operational Impact on AOL
AOL is expected to sell stock from one of the subsidiaries as part of the transaction; resulting in taxes connected with the sale being rendered immaterial. This sale is not just a financial maneuver but also a strategic one. By offloading these patents, AOL can focus more on its core business areas and invest in new growth opportunities.
AOL is also planning to utilize approximately $40 million of existing deferred tax assets to offset charges related to its remaining patent portfolio. This financial strategy will help AOL manage its tax liabilities more effectively, ensuring that the company remains financially healthy. Additionally, AOL plans to forward a ‘significant’ amount of the proceeds to its shareholders, which is likely to be well-received by the market and could potentially boost its stock price.
This transaction also highlights the value of intellectual property in the tech industry. Patents are not just legal protections but valuable assets that can be monetized. For AOL, this sale unlocks immediate financial value, which can be reinvested into the company or returned to shareholders, thereby creating long-term value.
Broader Industry Context
This deal is part of a broader trend in the tech industry where companies are increasingly focusing on acquiring patents to protect their innovations and gain a competitive edge. The high-stakes patent wars among tech giants underscore the importance of having a robust patent portfolio. For instance, Google’s acquisition of Motorola Mobility for $12.5 billion in 2011 was largely driven by the desire to acquire Motorola’s extensive patent portfolio.
Similarly, Apple’s ongoing legal battles with Samsung over patent infringements highlight how critical patents are in maintaining market dominance. In this context, Microsoft’s acquisition of AOL’s patents can be seen as a proactive measure to safeguard its interests and enhance its competitive position.
In conclusion, Microsoft’s $1.056 billion acquisition of AOL’s patents is a significant move that will have far-reaching implications for both companies. For Microsoft, it strengthens its intellectual property portfolio and enhances its technological capabilities. For AOL, it provides immediate financial benefits and allows the company to focus on its core business areas. This deal also reflects the broader industry trend of valuing patents as critical assets in the competitive tech landscape.
Source: ZDNET
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