MICROSOFT’S PURCHASE OF 800 AOL PATENTS AND PATENT APPLICATIONS LOCKS UP THE NETSCAPE PATENTS FOR MICROSOFT
Yesterday, news broke that Microsoft purchased 800 AOL patents and pending applications for $1.056 billion and also obtained a non-exclusive license to the remaining AOL patents. This amounts to $1.2 million per patent, which is a new high point among recent patent sales. The Motorola and Nortel sales amounted to $700,00 to $750,000 per patent.
This move by Microsoft occurred about a month after AOL hired Evercore Partners to help it find a suitable buyer for its patent portfolio. It is interesting that the initial valuation for the patents, made in February by activist investor, Starboard Value LP, was $1 billion.
Several patent analytics companies have publicly opined on the value of the AOL patent portfolio. M-Cam’s review of the AOL patent portfolio concluded that 71% of AOL’s US patents have “potential commercial impairment.” M-Cam put a valuation of $290 million on the AOL patent portfolio. M-Cam determined that 76% of the AOL patent portfolio will be in effect for at least another ten years. Four of the patents were reissued. Twenty percent of the AOL patents were originally issued to other entities, in particular, Netscape Communications.
The M-Cam report identified that the technology space surrounding the AOL US patents is dominated by patents owned by IBM, Microsoft, AT&T, Sony, Sun Microsystems, and Cisco, respectively. These companies have substantial numbers of patents that have pre-1991 patent intersections to AOL patents. The term “patent intersections” relates to technology and citation relationships identified by M-Cam analytics. M-Cam ranked Google as number eleven on this list. Google has no patents with early patent intersections in this area but has over 11,000 patents with AOL intersections that are post- 1991. M-Cam concluded that companies with pre-1991 patent intersections “could have leverage over AOL” as they hold patents with similar claims that predate AOL. M-Cam concluded that companies such as Google, Yahoo!, Digimarc and JP Morgan Chase could be licensing targets because of the high incidence of citation to AOL patents. .
A second analytics group, MDB Capital Group, an investment bank in Santa Monica, CA, put a value as great as $1 billion on the patent portfolio in an article published by Bloomberg on March 24: http://www.bloomberg.com/news/2012-03-23/aol-said-to-hire-evercore-to-find-buyer-for-800-patent-portfolio.html . A co-founder of MDB opined, “More than likely the buyer on this would be someone like Google or Microsoft (MSFT),”
The approach of these two companies shows the importance of context in patent valuation. MDB started its analysis by considering likely buyers and what the patent portfolio would mean to them, as well as the “heat” of the market. M-Cam, on the other hand, looked at the details of patents within the AOL portfolio and made its determination based upon the quality of patents within the portfolio. Both approaches have merit. The MDB approach is based upon business factors such as expectations regarding markets, and, “heat”, that is, a knowledge of desires to covet by particular company managements. The M-Cam approach provides an objective analysis of a patent portfolio once the game is played, a particular company wins, and the “heat” cools.
With this move, Microsoft has increased its arsenal of basic internet infrastructure patents and may be in a better position to compete with Google. Time will tell whether the AOL patents purchased are worth the price.
This post contributed by Janal Kalis.
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