The clamour for patent ownership amongst the world’s major technology companies has been a major talking point in techie circles over the last couple of years, and Facebook has just joined the scramble to fill the patent library, buying 650 patents (covering we don't know what exactly) worth $550m from Microsoft.
The social networking behemoth had originally tried to buy the batch of patents from AOL when it first put 925 out to auction, but was outbid by Microsoft who paid $1bn for the lot earlier this month. Facebook isn’t buying all of the 925, but will have a license to avoid infringing the remaining 275.
The purchase comes shortly after Facebook bought online photo-sharing service Instagram for $1bn (£629m) in early April – its largest acquisition to date. Add to that, Facebook now has a staggering 901 million active monthly users. For any site-traffic nerds out there (and the folks at MT certainly are) that’s 13.2% of the world’s entire population logging on every month. CEO Mark Zuckerberg ‘likes’ this.
Facebook, which was sued by Yahoo last month for patent infringement, joins a raft of companies keen to expand the number of patents they own. In the last twelve months Google acquired 24,000 patents and patent applications from Motorola Mobility for $12.5bn; a consortium including Apple, Microsoft and RIM acquired 6,000 patents for $4.5bn from Nortel Networks; and as part of its bankruptcy filing, we saw Kodak trying to flog 1,100 of its patents for $3bn.
It is worth noting that Microsoft remains a licensee of the patents once ownership transfers to Facebook, so the former has recouped more than half its money and still has rights to use the intellectual property. Doubtless some of these parents which are suddenly being hoarded are genuinely valuable. But often the details of what the patents concern are not made publicly available. Could this just be another asset bubble inflating?
It’s not all plain sailing for Facebook though – some markets have seen a bit of contraction (7 million active users dropped off the blue grid in the US and Canada in the last 12 months), and the books at Facebook do show a fall in profits to $203m in the first quarter of 2012, from $233m in 2011. But given the amount of intellectual property it has recently purchased, the fall in profits probably won’t be worrying potential investors ahead of the company’s IPO. At their most fanciful, speculators are still estimating the IPO could produce an implied value of $100bn. Let’s see.
For the time being, patents remain big business and when economic times are tough, many companies become acquisitive and defend their portfolios more aggressively. A typical example is the ongoing global patent dispute between Apple and Samsung over tablet-PC manufacturing. Real growth is pretty hard to come by, so firms are looking to make the most of the assets they possess. Patents lying around can sometimes be a bit of a cash-cow by selling or licensing to other companies.
Facebook will be keen to join this big league of patent owners as it gears up for its IPO, and if all goes well, the new patents may push up the share price and add a few more millionaires to the Silicon Valley brigade. Facebook’s shareholders definitely ‘like’ this.