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Facebook spends $550m on Microsoft patents

That didn’t take long. Just two weeks after Microsoft announced that it had purchased a major collection of patents from AOL for $ 1bn, Microsoft has turned around and sold 650 patents to Facebook, which is being sued by Yahoo for patent infringment.

Microsoft will retain a license to the patents, and as part of the $ 550m deal, Facebook will also receive licenses for AOL patents that Microsoft did not offer up for sale.

According to Microsoft EVP and general counsel Brad Smith, “Today’s agreement with Facebook enables us to recoup over half of our costs while achieving our goals from the AOL auction.”

Facebook, of course, was an eager buyer. The Yahoo lawsuit it’s fighting, which involves 10 patents, could have a material impact on the company’s business if it is found to have infringed. While the newly-acquired and licensed patents from Microsoft won’t directly address whether Facebook has infringed on Yahoo’s patents, something Yahoo was quick to point out today, Facebook is obviously hoping that its recent patent shopping spree will help it bolster its defenses. After all, Yahoo must be infringing upon one of the thousands of patents Facebook has either bought or licensed, right?

Perhaps, but that doesn’t speak to just how useful these patents are given that the value of a patent is not just based on whether it’s been infringed by somebody, but whether the damages that can be proved are substantial enough to be meaningful.

More importantly, Facebook’s patent-buying activity is another indication that the social network, which may go public in a few short weeks, is rapidly maturing. From its $ 1bn purchase of a 13-employee, revenue-less mobile photo sharing app to this $ 550m patent deal, Facebook isn’t quite acting like a scrappy upstart anymore.

Should it? With billions in the bank, billions in lines of credit and an IPO that could see its value pegged at upwards of $ 100bn, it certainly doesn’t need to. But at the end of the day, it’s important to remember that Facebook got where it is today because of the product it developed. Not because of products it acquired. And certainly not because of patents it bought.

So while Facebook spends freely to buy up competitors it fears may displace it and purchase expansive patent portfolios, it should remember not to skimp too much on big investments in what really matters — its product.

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