IBM’s Complaint to Twitter Leads to Patent Purchase

Twitter Inc. (TWTR), the microblogging service that went public last year, agreed to buy 900 patents from International Business Machines Corp. (IBM) to gain access to new technology and build a defense against infringement suits.

The agreement, signed last month and announced today, also resolves a dispute that prompted IBM to write to Twitter last year about possible infringement of at least three patents. Financial terms weren’t disclosed.

The purchase “provides us with greater intellectual property protection and gives us freedom of action to innovate on behalf of all those who use our service,” Ben Lee, legal director for Twitter, said in a statement.

Twitter had nine patents and 95 pending applications before its initial public offering in November, far fewer than other leading technology companies. It said in a regulatory filing that the lack of intellectual property could make the company a target for litigation and limit its ability to fight back by asserting its own patents.

Patent battles are an “increasing distraction” for technology companies, even if Twitter itself wasn’t facing much of an immediate threat, said Richard Doherty, research director of Envisioneering Group, a technology assessment consulting firm in Seaford, New York. “At some point it becomes just a balancing function to take advantage of warehouses of intellectual property, like at IBM.”

Video Delivery

In its letter to Twitter, IBM cited patents relating to a networking technique based on common contacts, a way to show advertisements without interfering with an interactive site, and using interconnected computers to reduce Web traffic. San Francisco-based Twitter also will probably gain IBM inventions related to things like video compression, Doherty said.

“As Twitter expands and starts delivering video, they need to increase their intellectual property portfolio,” he said. “We believe some know-how is going along with the patent transfer, not just patent numbers.”

The patents include some that directly relate to Twitter’s business plan. One covers a way to enable compliance with international shipping requirements. Twitter is seeking to get more revenue from retailers and is trying to make it easier for users to shop via its 140-character messages.

Messaging Technology

Another of the patents is for improved messaging, according to information posted on the U.S. Patent and Trademark Office website. Others are less clearly connected, such as a way to prevent damage to semiconductor chips.

For Twitter, the deal marks its first patent acquisition, not counting intellectual property it gained by purchasing other companies. The companies also entered a cross-licensing agreement. Of the three patents cited by IBM in its initial letter to Twitter, only one -- for interconnected computers -- has been assigned to Twitter, according to the patent office.

Shares of Twitter gained 1.4 percent to $64.35 at 11:52 a.m. in New York. IBM’s stock was little changed at $176.37.

IBM, which has received the most U.S. patents of any company for 21 straight years, has made deals with patent-light technology firms before. The Armonk, New York-based company has sold patents to Google Inc. (GOOG) to aid the Android software maker’s battle with rivals over smartphone technology. A sale of 750 patents to Facebook Inc. helped the social-networking site settle a lawsuit with Yahoo! Inc.

“It illustrates the value of patented IBM inventions and demonstrates our commitment to licensing access to our broad patent portfolio,” Ken King, general manager of intellectual property for IBM, said in a statement. “We look forward to a productive relationship with Twitter in the future.”

The licensing and sales deals mean IBM has agreements with almost every technology company in business. Its patents generate approximately $1 billion a year in licensing income, about 1 percent of its sales last year.

To contact the reporter on this story: Susan Decker in Washington at sdecker1@bloomberg.net

To contact the editors responsible for this story: Nick Turner at nturner7@bloomberg.net; Michael Shepard at mshepard7@bloomberg.net

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