Microsoft and Facebook Align Further With Patent Deal

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Seattle – A plan by Facebook to acquire a broad range of patents through a deal with Microsoft

is on its surface yet another twist in the battles over intellectual property engulfing the tech business.

But the subtext of the deal is a different story, showing how two of technology’s most powerful players

are teaming up to create a greater balance of power on the Internet — a market that has been tilted

decisively in favor of one company, Google, for years.

“This is almost certainly a move against Google,” said Rebecca Lieb, an analyst at Altimeter Group,

a research firm.

 

The agreement between Microsoft and Facebook, announced on Monday, came less than two weeks

after Microsoft agreed to pay more than $1 billion for 925 patents held by AOL. In a second deal,

Microsoft said it had turned around and sold 70 percent of those same patents — about 650 in all —

to Facebook for $550 million in cash, along with rights to 275 AOL patents Microsoft plans to retain.
While Facebook and Microsoft have not yet determined precisely how they are going to divvy up the patents,

it is expected that Facebook will end up with a range of patents involving mobile,

Web and instant messaging technologies.

Microsoft is likely to keep AOL patents involving search, among other things.

The arrangement will help Facebook bulk up its intellectual property portfolio before its

initial public offering, which is expected next month, and it is a further sign of the growing

importance of stockpiling patents in the arsenal of any big technology company.

“This is another significant step in our ongoing process of building an intellectual property portfolio

to protect Facebook’s interests over the long term,” Ted Ullyot, general counsel of Facebook,

said in a statement.

The deal could also give Facebook additional ammunition in its escalating patent feud with Yahoo.

Yahoo sued Facebook earlier this year, claiming violations of Yahoo patents,

many related to online advertising. Facebook subsequently countersued Yahoo, in a pattern that is

playing out again and again in different parts of the technology business,

especially the mobile phone market.

But in large part the deal is evidence of how Microsoft and Facebook have gravitated ever

closer to each other in part because of a common enemy, Google.

 

Google has menaced Microsoft’s business on a number of fronts, including with free online

Google applications that compete with Microsoft Office and with Android, a mobile operating system

that competes with Microsoft’s Windows Phone software.

As Facebook has evolved into a Web behemoth, with 900 million active monthly users,

Google has become increasingly focused on tamping down the challenge to its business from

the social network, introducing Google Plus, a rival social service. Google’s big concern

is that the bounty of data Facebook has about its users, including their tastes and friend connections,

will turn it into a serious rival for online advertising dollars.

There is also wide speculation that Facebook will start its own Internet search engine to rival Google.

“Microsoft is simply less concerned about the threat of social to its business than Google is,”

said Michael Gartenberg, an analyst at Gartner, a research firm, explaining why Microsoft is

not concerned about competition with Facebook.

“This may be a case of the enemy of my enemy is my friend,” he added.

Jim Prosser, a Google spokesman, declined to comment.

 

Microsoft has spent the last several years forging deeper connections with Facebook at every turn.

Long stymied in its efforts to create an Internet search engine that effectively competed against

Google, Microsoft two years ago struck a deal with Facebook to use data from the social network

in Microsoft’s Bing search engine to create more relevant search results.

But the arrangement has not helped dislodge Google from its position of supremacy in Internet search.

Years before that, Microsoft tried to acquire Facebook, but the social network’s chief executive,

Mark Zuckerberg, rebuffed the offer. Those conversations subsequently led to Microsoft’s taking

small stake in Facebook, from which it stands to profit handsomely after the company goes public.

In March, Google accounted for 66.4 percent of Internet searches in the United States,

unchanged from the same month a year earlier, while Microsoft was in second place with

15.3 percent of the market, according to comScore. Microsoft’s Bing search engine also supplies

search results for Yahoo, which accounted for 13.7 percent of the search market during March.

Microsoft has continued to lose money on Bing, including more than $2.6 billion in operating losses

for its online division during its last fiscal year.

 

Some executives within Microsoft have advocated selling Bing to another company,

with the idea that a company better focused on the Internet market could pose a more credible

challenge to Google, according to severalpeople with knowledge of the discussions who didn’t want

to be identified talking about internal deliberations.Over a year ago, Microsoft executives sent

out feelers to Facebook to see if the company would be interested in acquiring Bing,

though the overture was not officially sanctioned by Steven A. Ballmer, chief executive of Microsoft,

one of these people said.

 

Mr. Zuckerberg declined, saying Facebook had too much else to concentrate on.

Dawn Beauparlant, a spokeswoman for Microsoft, declined to comment,

as did Ashley Zandy, a spokeswoman for Facebook.

In its original patent deal with AOL, Microsoft either bought or won the ability to assign

about 925 patents and patent applications, along with a license to several hundred other

patents AOL did not sell as part of an auction of its intellectual property.

If the deal announced Monday clears regulatory scrutiny, Microsoft would still own about 275

AOL patents and retain a license to the 650 patents that Facebook will own. In addition,

Microsoft is granting Facebook a license to the 275 AOL patents that it is keeping.

Yahoo’s legal attack on Facebook came at a sensitive time, as the company nears an expected

initial public offering.

In a statement, Yahoo said the deal with Microsoft will not deter its lawsuit against Facebook.

“Nothing about today’s action changes the fact that Facebook continues to infringe our patents,”

Yahoo said in the statement. “Companies who purchase patents are often working from a position

of weakness and take these actions to strengthen their portfolio. We see today’s announcement as a

validation of our case against Facebook.”

The deal with Facebook puts Microsoft in an awkward position since it could help strengthen one

close partner at the expense of another, Yahoo.

“We are very sensitive to the importance of our relationship with both Facebook and Yahoo,”

Brad Smith, Microsoft’s general counsel said in an interview. “We have enormous respect for

the value of the Yahoo patent portfolio. Yahoo has been an important innovator in the Internet space.”

 

Source:http://bits.blogs.nytimes.com/2012/04/23/microsoft-and-facebook-align-further-with-patent-deal/#