It was widely reported yesterday that AOL Inc. (NYSE: AOL) on Monday agreed to sell more than 800 patents and related products to Microsoft Corp. (NASDAQ: MSFT) for $1.056 billion. It was also written that the struggling online services provider was under pressure from activist investor Starboard Value, holder of 5.2% of AOL’s shares. AOL shares were up 43% for the day.
Experts caution the $1.3M paid per patent for the portfolio, among the highest on record, should not be the focus of this transaction or its meaning. Two experienced patent managers told that they believe perhaps 25 or 30 patents generated the bulk of the immediate value to Microsoft, but which ones remain somewhat of a mystery. AOL, in business since the 1980s, is not new to the patent game. Early priority dates on some of their patents covering Internet security, communications and transactions are certain to be useful in negotiating with competitors today or down the road.
Clearly, the patents are worth more in the hands of cash-rich Microsoft than AOL. And from Microsoft’s perspective, it is important they stay out of the hands of their rivals.
According to the WSJ story patent valuation firm M-Cam, Inc. had appraised the patent portfolio at $290m, and Clayton Moran, an analyst with Benchmark said “Most on the Street viewed $300 million as the likely maximum value.” These value estimates appear to have been dramatically off.
One IP transaction expert who had reviewed some of the patents had a slightly different take on the deal. He thought that while the sale price appeared more than fair, some of the patents are truly fundamental, and a more methodical and inclusive sale process may have netted more for AOL shareholders.
“Based on the patents that I examined I thought the entire AOL patent portfolio could be worth as much as $1.79B, the entire market cap of the company,” said Rob Aronoff, Managing Partner of Pluritas, LLC, an IP transactions firm that Brody Berman Associates has advised. “At least several fundamental patents were included in the core portfolio, and my informal assessment indicated that full portfolio value of all AOL’s 1,100 patents without the business operations was probably in the area of $1.4B. Had there been more time for a marketing effort by Evercore Partners instead of a rush to sale the AOL may have gotten closer to the full $1.79B company value.”
“This transaction appears to have been rushed into the marketplace on a relative basis when compared to other major patent sales like Nortel and Motorola Mobility,” concludes Aronoff, who is based in San Francisco. “The beneficiary appears to be Microsoft. The approximately one-month sales process does not appear to have been played out to the benefit of the all shareholders.
“The call for bids was made only Friday of last week, and they have already awarded the patents, with no further rounds of bidding to Microsoft, on whose benefit Evercore had recently conducted a complex transaction regarding ADAPTIX. Had the process taken say three months AOL may have gotten Google, Apple and possibly others interested enough to bid higher. $1B may sound like a lot to pay for 800 patents and licenses, but for these timely rights the price may be more of a bargain than many had imagined.”
First published at IPCloseUp