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Facebook Purchases AOL Patents From Microsoft for $550 Million

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Patent acquisition could bolster Facebook's legal defense against Yahoo and enhances ongoing ties to Microsoft.

Facebook has announced that it is purchasing some 650 patents from Microsoft for $550 million in cash. The acquisition marks the second major investment by the social media giant in the past month off the heels of Facebook's billion dollar purchase of photo-sharing platform Instagram. For Microsoft, the deal represents something like arbitrage. The patents were purchased from AOL at an auction earlier this month.

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In advance of an IPO, Facebook has bolstering its portfolio and guarding itself against litigation. Most notably, in March, Yahoo sued Facebook for infringing 10 patents related to social media. Facebook denied the charges and is countersuing.

"Today's agreement with Microsoft represents an important acquisition for Facebook," said Ted Ullyot, general counsel for Facebook. "This is another significant step in our ongoing process of building an intellectual property portfolio to protect Facebook's interests over the long term."

Facebook now controls nearly 1,500 patents, having made a deal last month to acquire some of IBM's patent portfolio.

The latest patents sold to Facebook have traveled from AOL via Microsoft, which spent just over a billion dollars to buy about 925 patents and patent applications at an auction earlier this month.

As part of the new deal, Facebook not only purchases 650 patents, but has taken a license on many of Microsoft's remaining AOL patents.

"Today's agreement with Facebook enables us to recoup over half of our costs while achieving our goals from the AOL auction," said Brad Smith, executive vice president and general counsel of Microsoft.

Facebook and Microsoft have a history together.

In 2007, Microsoft beat rivals Google and Yahoo for the right to become involved in Facebook by investing $240 million in return for a stake that was estimated at the time to be 1.6 percent of the burgeoning social media website.

In a statement, a Yahoo spokesperson said, "Nothing about today’s action changes the fact that Facebook continues to infringe our patents.  Companies who purchase patents are often working from a position of weakness and take these actions to strengthen their portfolio. We see today's announcement as a validation of our case against Facebook."

E-mail: eriq.gardner@thr.com

Twitter: @eriqgardner