Microsoft To Buy AOL Patents

Patents may be from AOL's Netscape unit.

Microsoft says it will buy over 800 of AOL's patents for over $1 billion in cash.

Today's announcement of the deal involves the sale of an unnamed AOL subsidiary that is performing at a loss, possibly once-dominant browser maker Netscape according to a rumor. A Microsoft spokesperson declined to provide information that would identify the subsidiary's name or the nature of the patents sold.

AOL indicated that the sale of the patents was designed as a tax strategy and that AOL planned to distribute part of the proceeds to its shareholders. The deal is described as a definitive agreement. Should Microsoft withdraw after two days, it could be penalized with a $211 million termination fee.

Some financial analysts say the assets are overvalued, estimating their worth at closer to $300 million. Pressure to sell may have come from AOL shareholder Starboard Value LP that wanted the company to deliver better value, according to a Reuters' account. Microsoft and AOL expect the deal to be completed by the end of the year (assuming regulatory approvals).

AOL's stock today rose to $24.85 per share, then closed at $18.42 per share.

In a preparted sattement, Microsoft's Brad Smith, general counsel and executive vice president for legal and corporate affairs said, "This is a valuable portfolio that we have been following for years and analyzing in detail for several months." He pointed out that "AOL ran a competitive auction and by participating, Microsoft was able to achieve our two primary goals: obtaining a durable license to the full AOL portfolio and ownership of certain patents that complement our existing portfolio."

If the patents are associated with AOL's Netscape holdings, it would represent a final endgame of sorts for a long-defunct browser that once overshadowed Microsoft's current frontrunner, Internet Explorer. AOL announced its purchase plans for Netscape in the fall of 1998, but it gradually wound down the original developer team's efforts on the browser over subsequent years. Netscape diminished in use. However, code for the browser previously had been forked into an open source Mozilla Project in January of 1998. The Mozilla Corp. was founded by the Project to foster that code, which resulted in the Firefox browser that's in use today.

About the Author

Kurt Mackie is senior news producer for the 1105 Enterprise Computing Group.