What is AOL’s Patent Porfolio Really Worth to Microsoft?

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Microsoft (NASDAQ:MSFT) bought itself some serious leverage when it purchased 800 patents from AOL (NYSE:AOL), worth every penny of the $1.06 billion it paid, and probably more. Neither company has revealed just what the patents cover, but rest assured Microsoft has plans for them — plans that could give it some serious firepower in the ever growing litigious war that is the technology front.

Patents give Microsoft the license to sue, to cripple its competitors by forcing them to take items off the shelves, or to strike deals that give the company a cut of profits it had no hand in making. According to Alexander Poltorak, chairman and chief executive of General Patent Corp., “only [between] 3 and 4% of patent lawsuits end up in trial,” with most ending with a settlement beneficial to both parties.

Poltorak adds that if AOL was willing to sell at $1.06 billion, the patents must be worth 10 times as much in the hands of someone who plans to enforce them. “On the open market, patents are sold for 10% of their enforcement value” as a general rule, said Poltorak.

That is not to say AOL is playing the part of the sucker in this scenario. The company created value where its shareholders saw little, and buoyed its stock price by promising to pass on some of the sale proceeds. “The combined sale and licensing arrangement unlocks current dollar value for our shareholders and enables AOL to continue to aggressively execute on our strategy to create long-term shareholder value,” said AOL chairman and CEO Tim Armstrong.

Furthermore, Armstrong maintains AOL still holds a “valuable patent portfolio” for its own leveraging — a portfolio that has quite a few years on most existing tech companies, as AOL has been around since the early days of the tech boom, and that is likely packed with patents picked up from its association with Time Warner (NYSE:TWX).

Microsoft may utilize its new patents in its struggle against Motorola (NYSE:MMI), which is being bought by Google (NASDAQ:GOOG), leading some experts to question why Google didn’t snatch them up itself. “I think Google should really have bought these patents because AOL was first to invent many of the chat and other online community functionalities that Google’s online services — not only Google+ but also Google Talk and GMail — implement,” said Florian Mueller, an intellectual property analyst.

Of course, Google will gain a hefty portfolio of its own with its purchase of Motorola — 17,000 patents in all that will certainly help the Internet giant avoid some scuffles, or even pick a few fights. Of course, neither the Google-Motorola deal nor the AOL-Microsoft patent sale have yet cleared regulator scrutiny. And after AT&T’s (NYSE:T) acquisition of T-Mobile was squashed late last year, investors are more wary of counting their chickens before they’ve hatched.

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