Microsoft wanted to partner with Facebook on patent purchase all along, but AOL auction wouldn’t allow it

Microsoft announced today that it will be selling hundreds of patents to Facebook, a sign that it wants to protect its investment from litigation as the social network heads towards an IPO next month. But this wasn’t a sudden change of heart.

According to sources familiar with the deal, Microsoft and Facebook were hoping to partner on a $1 billion purchase of AOL patents, but the rules of the auction banned collaborative or consortium bids. So the companies did an end around, with Microsoft buying the patents for $1 billion and then striking a $550 million dollar deal with Facebook.

There are a lot of angles in play here. Yahoo sued Facebook, which set the social network off a hunt for patents. It bought some from IBM, then filed a countersuit against Yahoo. AOL, in the meantime, saw the Yahoo lawsuit, and wondered how it could get value of its patent portfolio. Rather than litigate, it decided to sell, eventually passing its IP to Microsoft for $1 billion.

AOL, like Yahoo, had a broad portfolio of patents related to the rise of Web 1.0 technologies, many of which now seem foundational to the functioning of any internet business. There was also a broad swathe of proto-social patents that Yahoo and AOL can lay claim to, though, to quote The Social Network film, “If they had invented The Facebook, they would have invented the Facebook.”

Mark Zuckerberg photo via John Adams on Flickr