Facebook and Microsoft sign $550m patent deal

Microsoft and Facebook have announced a whopping $550m deal under which the social networking giant will be given the right to purchase a portion of the patent portfolio that Microsoft acquired from AOL.

Microsoft acquired almost 1,000 patents from AOL in an auction in April, and as a result of the deal announced on Monday, Facebook will take ownership of some 650 patents. Microsoft will still be able to use these under licence.

Microsoft will retain some 275 patents from the initial purchase. Brad Smith, executive vice president and general counsel at Microsoft, said the deal signed with Facebook was a strong outcome for the firm.

"Today's agreement with Facebook enables us to recoup over half of our costs while achieving our goals from the AOL auction," he said

"As we said earlier this month, we had submitted the winning AOL bid in order to obtain a durable licence to the full AOL portfolio and ownership of certain patents that complement our existing portfolio."

Facebook general counsel Ted Ullyot said the deal was an "an important acquisition for Facebook" as it seeks to protect itself in the wake of a recent legal threat from Yahoo.

"This is another significant step in our ongoing process of building an intellectual property portfolio to protect Facebook's interests over the long term," he noted.

The $550m outlay adds to the $1bn Facebook has already agreed to splash on image service Instagram as the social network giant throws its weight around ahead of its flotation on the stock market. Expected in May, the IPO should value the company at around $100bn.

Analyst Michael Cherry of Directions on Microsoft, a research and analysis firm focused on the compapny, told V3 that Redmond could have a number of motivations for making the deal beyond financial gain.

He noted that with the company joining forces with its rivals in patent deals such as the Nortel buy, Microsoft could use the deal as a way to bank a bit of good will with Facebook.

"It may be that Microsoft is buying a friend for the future, if you help out someone today they might come to your aid later," he said.

"It is funny how these partnershps are coming together, they have made some strange bedfellows become friends."