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Facebook and Microsoft: An IP Bromance

Facebook pays $550 million for patents.
April 24, 2012

What should we call them, Brangelina-style? Facesoft? Microbook? Signs of Facebook and Microsoft’s close ties emerged again yesterday, when the two companies jointly announced that Facebook would fork over $550 million to Microsoft to acquire many of the patents that the Redmond company had bought from AOL a few weeks ago for $1.065 billion.

The details of the deal are here. Microsoft had previously bought (just a few weeks ago) 925 of AOL’s patents, plus a license to some 300 AOL patents that weren’t for sale. Facebook now will own about 650 of the AOL patents, “plus a license to the AOL patents and applications that Microsoft will purchase and own.” Microsoft explained that the deal “enables us to recoup over half our costs while achieving our goals from the AOL auction.” In all likelihood, say analysts (and common sense), Microsoft will want to keep a tighter grip on patents involving search and other aspects of its business, while Facebook is going to be eyeing those patents that have to do with mobile and instant messaging. Facebook had reportedly made a bid on the original AOL patent sale, but it was too low an offer.

Assuming you’re not an IP lawyer, it’s worthwhile to step back and consider what all this means, from a grand strategic standpoint. First of all, it’s important not to get too hung up on numbers. One blockbuster of a patent is worth more than 500 lousy ones. As one IP expert told Bloomberg, “Often in large portfolios the value is concentrated in a smaller subset of patents, so it can be that in a 800-patent portfolio only 20 contain most of the value.” 

But $550 million? Could a bunch of patents really be worth that much, for a company that has already done a billion in revenue two quarters running? In a word, yes. Yahoo has already lobbed lawsuits at Facebook, claiming that the social network was trespassing on Yahoo IP pertaining to online advertising. Getting sued isn’t necessarily the end of the world. Speaking of the IP imbroglios in the smartphone space, a patent expert once told me, “Oftentimes the way a party signals to another party in one’s industry, ‘I’m serious about this–you need to speak with me,’ is by filing a lawsuit.” But some lawsuits can be devastating–and scooping up patents is a way of shielding yourself against that occasional well-aimed spear that can be very detrimental to your business.

A last thing worth noting in the deal is the continued signs of warmth between Microsoft and Facebook, a kind of tech bromance that it is often interpreted as a canny alliance against Google. “This may be a case of the enemy of my enemy is my friend,” an analyst told the Boston Globe.

Personally, my interpretation of the Facebook-Microsoft alliance has never quite been one of two parties being forced to do business with one another solely to defeat a common enemy. The Facebook-Microsoft bromance, I feel, is more nuanced than a shotgun wedding, an alliance forged under duress. From the early reports of Microsoft’s attempts to acquire Facebook (which Mark Zuckerberg declined), to Microsoft’s 2007 investment of $240 million (from which it stands to make a fortune), to the Bing-Facebook integration of a few years later, the relationship between Facebook and Microsoft always seems to me like the one between a father and son engaged in friendly competition that warms into a kind of collaboration. The recent patent deal seems a logical extension of that relationship, one of the more intriguing and mysterious ones in technology today, and one whose ultimate fruits remain to be seen.

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