Facebook Inc. (FB), the biggest social- networking service, made an offer for AOL Inc. (AOL)’s patent portfolio before losing out to Microsoft Corp. (MSFT)’s $1.06 billion bid, two people with knowledge of the matter said.
The proposal by Facebook was too low, said the people, who asked not to be identified because the discussions haven’t been disclosed. Still, Microsoft intends to sell most of the newly acquired portfolio because it doesn’t consider all of the 800 patents and related applications essential to its intellectual property arsenal, according to another person with knowledge of the matter. Facebook may be interested in those patents Microsoft plans to sell, one person said.
The technology industry has been bulking up on patents amid a surge in disputes over ownership of rights to key breakthroughs in areas such as mobile communications. Microsoft’s ability to find a buyer will hinge on the quality of the patents, said David Berten, founder and partner of Global IP Law Group, a Chicago-based law firm.
“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,” Berten said.
Larry Yu, a spokesman for Facebook, declined to comment, as did Kevin Kutz, a spokesman for Redmond, Washington-based Microsoft, and Caroline Campbell, a spokeswoman for New York- based AOL.
On the same day Microsoft unveiled the AOL deal, Facebook, based in Menlo Park, California, said it is buying the Instagram photo-sharing tool for $1 billion. Facebook Chief Operating Officer Sheryl Sandberg led the negotiations to acquire AOL’s patents, one person said.
Facebook has lined up $8 billion of available credit from its IPO underwriters. Like more established technology companies, such as Apple Inc. (AAPL) and Google Inc., it is buying intellectual property to protect itself from patent-infringement litigation.
Facebook, which is in the midst of a patent dispute with Yahoo! Inc. (YHOO), acquired 750 patents from International Business Machines Corp. (IBM), a person with knowledge of the matter said on March 22. Yahoo sued Facebook on March 12, alleging that the social network infringed patents covering such functions as Internet advertising and information sharing.
“If an unfavorable outcome were to occur in this litigation, the impact could be material to our business, financial condition or results of operations,” Facebook said in a March 27 filing.