Facebook, Microsoft, AOL, IBM Patents: Why These Billion Dollar Deals Matter

Just in time patenting is edgy at a time when patents mean big money — and big litigation. But is it pro innovation. You have to decide from the facts as I present them.

Check out this patent.

Five Reasons Why the Facebook-Microsoft-AOL and the Facebook-IBM Patent Deals Matter

  1. Facebook has made effective use of the just-in-time patent strategy. It got sued. So it bought defensive intellectual property (IP) from Microsoft in this deal. It needed the armor.

Yahoo! sued Facebook for patent infringement just weeks before, on March 12. Most of the Yahoo! patents in that offensive suit were Yahoo homegrown. But Facebook’s countersuit is a collection of newly and rapidly snagged patents — Facebook hastily assembled 10 of them after Yahoo sued it. Protection patents — aka just-in-time for court patents. Facebook bought them for last minute protection and this is perfectly legal. Its fairness isn’t as clear. Certainly, a young or poor individual inventor can’t purchase litigating protective patents for enormous sums of money.

Just in time patenting is edgy at a time when patents mean big money — and big litigation. But is it pro innovation. You have to decide from the facts as I present them.

Check out this patent.

AOL Buddy List Patent
Credit: The USPTO

2.  Facebook has effectively ended all intellectual property business risks in its MS & IBM patent acquisitions.

Now that Facebook has nearly 1,500 patents, its competitors will be a lot less likely to seek to use their patents to terminate the company’s business concerns.  With that many patents in its arsenal, Facebook present a scary face for competitors who litigate instead of just license or negotiate around tech rights. Lawsuits will be financial risks not business ones – Facebook may lose some money in patent litigation, but it won’t go out of business because of a patent dispute.

The prospect that Yahoo! could obtain an injunction and force Facebook out of business was quite possibly the rock candy mountain that Yahoo! thought it would grab. It isn’t likely now.

3.  IBM and Microsoft have effectively shaped the market through their transactions. They are making their own markets. Neither sold patents to Facebook, notice. They each profited, though.

Yes, they made money directly from the transactions, $550M for MS and a reported $83M for IBM.  Hors d’oeuvre sums for companies their size and not much of a reason for doing a deal, anyway.

And in addition to the cash, these giants have effectively shaped a market all by themselves. This is a market where Facebook would have a prominent position unavailable to close competitors, but all giants will profit from the fight. Facebook likely has a complete patent arsenal now. Next.

4.  IBM and Microsoft continue to show that innovation in tech doesn’t necessarily involve heavy lab time.

IBM holds the largest patent portfolio among U.S.  — that is, domestic — companies.  IBM’s recent transactions with Google, Facebook, and others show that IBM’s patent production lines can crank out valuable rights without endangering the overall operation.

Even before these transactions, IBM was generating between $1.5-$2.5 billion/year in IP transactions, and IBM execs previously boasted that the company values the portfolio 3 times its cash receipts — this because of the deals that IBM can achieve using the portfolio.

Big Blue might just be the world’s largest and most well camouflaged MPE or mass patent aggregator.

Microsoft similarly demonstrates its ability to innovate savvy business deals.  The company grabbed up the not insubstantial portfolio of a former rival for $1 billion. In a little more than 2 weeks, it reduced that acquisition price by half — due to the Facebook deal.  MS retains a license to all the patents transferred to Facebook, according to docs I examined, and it will of course retain the ones it considers most valuable.

5.  Yahoo!’s Schumpeter moment  …  the torch has passed to a new strategy.

Yahoo! followed a tried and true patent assertion strategy in its assault on Facebook.  The seasoned tech company followed the old school playbook – find X patents from your own portfolio and attack the upstart, holding in reserve the prospect of Y patents for licensing in the inevitable settlement along with possibly a half dozen other favorable business terms.

But Facebook didn’t follow the old script – it adopted a newer more flexible one – where cash can be used to buy everything.  The result?  In just a month, Facebook now has a patent portfolio that rivals Yahoo!’s patent portfolio.

Facebook is probably looking forward to settlement negotiations. Yahoo! probably isn’t. Facebook has creatively destroyed an old way of handling patent strategy and passed the torch to a new strategy.

Facebook isn’t the first company to take this approach, but this may be considered the defining moment of a new patent strategy.

For aNewDomain.net, I’m Thomas Ewing.


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