Why is Facebook buying Microsoft's patents?

In another blockbuster deal, the social network has agreed to pay $550 million for hundreds of licenses once owned by AOL.

By TheWeek.com Apr 25, 2012 11:39AM
Facebook, which surpassed 900 million monthly active users on Monday, will pay Microsoft (MSFT) $550 million for access to a number of unspecified patents that Microsoft acquired earlier this month from AOL (AOL). Per the agreement, Microsoft -- a Facebook shareholder -- will give the social network complete control of 650 of the patents, while giving Mark Zuckerberg's company a special license to use the remaining 275 (which will still be owned by Microsoft). Facebook has been on a buying spree as of late, and in late March struck an $83 million deal with IBM for more than 700 patents. (Microsoft owns and publishes TechBiz, an MSN Money site.)

Why is the Silicon Valley powerhouse now turning to Microsoft's portfolio? Here, four theories:

1. It's a defensive maneuver

"The deal gives Facebook a much stronger position in the world of patents, where it had been weak up to now and has been facing lawsuits," says Ingrid Lunden at TechCrunch. When the social network filed its first round of paperwork for an initial public offering in February, the company became a ripe target for patent trolls. Because a lot of the patents likely cover technologies used by companies that want to sue Facebook over patent-infringement, the purchase of Microsoft/AOL's expansive portfolio could be Facebook's attempt to protect itself.

2. Facebook is specifically sending Yahoo a message

Yahoo's (YHOO) "bully-boy bluff has effectively been called" says Kara Swisher at All Things D. Rather than take Yahoo's eyebrow-raising patent-infringement lawsuit lying down, Facebook has instead chosen to countersue Yahoo, its former partner -- and the social network is loading up the big guns with these recent purchases. Facebook's message to Yahoo is "beyond clear," says Charles Cooper at CNET: "Do you want to get into a spending war with a company whose deep pockets are about to get a lot deeper? In other words, there's a lot more where that came from."

3. Microsoft just needed the money

The move is a "big coup for Microsoft," says TechCrunch's Lunden, "since it helps it gain back some of the astounding $1 billion it spent on those patents in the first place." Yes, it's true, says Microsoft executive vice president Brad Smith. "Today's agreement with Facebook enables us to recoup over half of our costs while achieving our goals from the AOL auction," which is to obtain ownership "of certain patents that complement our existing portfolio." This might just be a case of Facebook helping out one of its partners.

4. Microsoft is trying to partner up to take on Google

"I didn't think Microsoft would help Facebook in its lawsuit against Yahoo, considering that Microsoft needs to keep peace with Yahoo to fend off Google (GOOG)," says Emil Protalinski at ZDNet. "I was wrong." Microsoft knows it needs Yahoo to grow its search engine, Bing, to stand a chance against Google. And Microsoft knows it needs Facebook if it hopes to offer a true Google alternative to users. Somehow, the company "found a very clever way to give Facebook a boost, while still getting what it wants (the remaining patents), without damaging its relationship with Yahoo." When all is said and done, Microsoft is the big winner here.

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