Earlier this month, Microsoft outbid Facebook in the auctioning of about 925 AOL patents and patent applications. Microsoft spent more than $1 billion to beat out all competition. On Monday, Facebook announced it would be buying about 650 of the AOL patents back from Microsoft.
The social media giant bought the patents for a reported $550 million. A Facebook lawyer described the deal as: “Another significant step in our on-going process of building an intellectual property portfolio to protect Facebook’s interest.”
The statement lines up with expert’s speculation that deal is all part of Facebook’s effort to protect itself from property rights and intellectual infringement. Also with plans to go public next month (IPO), Facebook is protecting itself from possible litigation from other companies.
The networking site is currently in a patent fight with Yahoo! over a claim that Facebook is infringing on its intellectual property involving advertising, privacy controls, news feeds and messaging services.
Facebook knows that losing a patent lawsuit, especially with Yahoo! could have a detrimental impact on “our business, financial condition, or results of operations,” general counsel for Facebook, Ted Ullyot said to the Telegraph.
“We expect the number of patent and other intellectual property claims against us to grow,” he added.
The AOL patents deal with Microsoft may prevent such lawsuits from happening in the future. As for Microsoft, it was a way to gain profit back from the sale.
“Today’s agreement with Facebook enables us to recoup over half of our costs while achieving our goals from the AOL auction,” Brad Smith, executive vice president and general counsel for Microsoft said in a statement. “We had submitted the winning AOL bid in order to obtain a durable license to the full AOL portfolio and ownership of certain patents that complement our existing portfolio.”
Some wonder if Microsoft planned to outbid Facebook all along, only to resell the patents. In an interview with AllThingsD, Smith said, “We never felt it was necessary or even important for us to own all the patents.”
Sources close to the deals told Bloomberg Businessweek that Facebook had made a bid for the same patents previously, but the bid was too low. The deal still leaves Microsoft with 275 or so of the original patents they purchased. Microsoft will retain licenses to the 650 Facebook bought, plus the 300 AOL patents it bought licenses to, earlier this year.
Despite Facebook’s enormous deal with Microsoft, the social networking site reported earnings and revenues fell in the first quarter of 2012, according to the Guardian. Facebook’s revenue in the first three months of the year rose 45% year-on-year to $1.06bn, compared with the first quarter of 2011. But profit during the quarter dropped 12% to $205m from $233 a year earlier.
Never mind the decline, Facebook is still growing. It now boasts 901 million monthly users and advertising revenue was up 37%. If the company continues on the path of growth it is expected to hit a billion active users by the end of 2012.
Facebook is expected to take its initial public offering on May 17, according to TechCrunch. The value of the company will most likely be around $100bn.