AOL Finally Figured Out a Way to Make Money
AOL shareholders must be beside themselves after the company offloaded over 800 patents to Microsoft in a deal worth about $1 billion.
AOL shareholders must be beside themselves after the company offloaded over 800 patents to Microsoft in a deal worth about $1 billion. The price on their stock skyrocketed 37 percent on Monday morning after the deal was announced and CEO Tim Armstrong sounded cheerful about the "the culmination of a robust auction process" in a press release. Some Silicon Valley types weary of all this patent warfare, however, did not.
"I get that AOL has shareholder pressure for selling patents. still very deeply disappointing -- especially to Microsoft," TechCrunch editor Eric Eldon tweeted a few minutes after the press release hit the wires. "It's all just gross." What's so gross? Well, blue chip tech companies' unquenchable thirst for fake blood in legal battles over intellectual property. The types of patents that AOL is selling aren't the same kind of patents that, say, Ford Motor Company might own for a piece of machinery. They're for innovations in software design and tend to be pretty subjective when it comes to interpreting the definition of infringement. In AOL's case, the patents are likely related to instant messaging and email, says AllThingsD's Peter Kafka, and the company also threw in some stock to an unnamed subsidiary.
Take the burgeoning battle royale between Yahoo and Facebook. Bloated, CEO-less and looking for their next big thing, Yahoo sued Facebook for infringing upon 10 to 20 of its patents. What could Facebook have done that was worthy of a big huge lawsuit? We don't actually know, since the patents weren't named but rather than dodge the bullet with a quick lawsuit, Facebook countersued. Now we all get to sit back and watch the legal team gallop towards each other swinging briefcases and drafting briefs, a boring cavalry hellbent on spending money not to make new products but rather stall their competitors from innovating. This has been an increasingly popular way of doing business in the tech industry over the course of the past year. The company with the most patents (or the best lawyers) wins, and the the consumers don't.
If these patent wargames are going to keep going, AOL is now stuck in the field without far fewer weapons, so to speak. After the Microsoft sale, the company holds on to about 300 patents. This might not matter one bit, though, if the board decides to break up the company into parts and sell it off in another kind of auction process. But GigaOm's Matthew Ingram is skeptical that one-time sales of patents amounts to a sustainable business model. "It's great that AOL made a billion selling its patents to Microsoft, but you can only sell your furniture once," he tweeted. Still, money is money, and AOL now has a little bit more of it. We hope they use it to install a few more nap rooms in their headquarters.