April 2012

AOL announced the sale of over 800 patents and patent applications to Microsoft, and a non-exclusive license covering the rest of its retained patent portfolio.  The sale price is $1.056 billion in cash.

The sale includes the stock of an AOL subsidiary, which allows AOL to offset the patent sales against a loss involving the subsidiary.  Presumably, the subsidiary involves Mapquest, which AOL purchased in 1999 for $1.1 billion.  According to the U.S. Patent & Trademark Office, Mapquest has well over 200 patents.

Mapquest supports OpenStreetMap, a collaborative project to create a free editable map of the world. Google Maps is the leading competitor in providing internet-based maps.  The ability to connect corporate search with maps is quite valuable, and no doubt drove the high price.

We commented on the motivations and ramifications of another patent sale in July 2011 involving Nortel.  Nortel’s sale for $4.5 billion cash of more than 6,000 patentswas remarkably high.  The Nortel purchase was made by a consortium in which Microsoft has about a one-quarter interest.  Among other things, we predicted increased patent litigation regarding the large Nortel portfolio.  The same thing can probably be said for the current Microsoft purchase from AOL.   The high price AOL obtained is likely based in part on either the defensive value of having these patents, or the offensive value of suing Google for patent infringement.

AOL was spun off from Time Warner in late 2009.  The stock market did not anticipate patent values anywhere close to what occurred, since AOL’s stock immediately rose around 45%.  Demonstrating just how difficult it is to value patents, Bloomberg reported less than two weeks ago that a patent valuation firm said AOL’s patents (including those not sold in this transaction) were worth a “ceiling price of $290 million” under the circumstances where a strategic buyer was involved.  (Google was mentioned as an example of such an entity paying premium prices.)

Fulcrum Inquiry values patents and calculates damages in intellectual property litigation.