AOL plans to sell 800 patents to Microsoft for $1 billion

Struggling Internet icon AOL got $1.06 billion from Microsoft for a trove of 800 patents in an auction, the latest sign of just how valuable such portfolios can be for technology companies.

“There is a fight for market share occurring on multiple fronts — technology, patents, advertising,” said Colin Gillis, an analyst at BGC Financial. “Microsoft, more so than others out there, has been (using) its patent portfolio as a way to generate license fees. This should strengthen that.”

Microsoft refused to say what the patents cover. Benchmark analyst Clayton Moran said they revolve around Internet technology, including advertising, search and mapping. This would help Microsoft go up against Google, which is ahead of it in all three areas. For tech companies, patents have become useful both for attack — for suing competitors — and for defense in warding off lawsuits with threats of countersuits.

Facebook recently purchased 750 patents from IBM, a move that likely helped the company defend itself after Yahoo accused it of violating 10 Yahoo patents. Facebook shot back with its own lawsuit, claiming Yahoo is violating 10 Facebook patents.

Software patents can have broad applications, and thousands of patents can apply to a complicated product, such as a cellphone. Google is buying phone maker Motorola Mobility Holdings for $12.5 billion, in large part to get its patents.

AOL’S shares surged $7.98, or 43%, to close at $26.40 Monday. The website developer and Internet access company said it plans to return some of the sale proceeds to shareholders. After the sale, AOL said it should have about $15 per share of cash on hand. Microsoft shares slipped 42 cents, to $31.10, amid a broad market decline.

AOL’S move signals that it’s listening to stockholders who are asking for more return on their investment. In February, one of AOL’S largest shareholders, an investment firm, said it will nominate candidates for the company’s board because it wasn’t doing enough to make money from its patents. AOL said at the time that it had already begun to look at ways to unlock patent value.

AOL said it will determine the best way to distribute a “significant portion” of the sale proceeds to shareholders before the sale closes, which is expected by the end of this year.