Tuesday, April 10, 2012

What else can $1,000,000,000 buy? 800 patents

Just as Facebook was announcing $1 billion acquisition of Instagram, there was another one billion dollar deal happening.  It was Microsoft buying 800 patents from AOL.

Microsoft announced $1.06B patent purchase from AOL;
winner is clearly AOL, but it will take more than
patent sales to turn AOL around.
Yes, Microsoft has agreed to pay $1,060,000,000 to AOL for 800 patents.  Not knowing any detail about those patent, only intelligent thing about that deal we can say is that each patent is costing Microsoft about $1,325,000.  It means there are some patents that will be worth more than that.

When you look at this deal side by side with Facebook's Instagram acquisition, it makes Instagram deal look like a bargain.  Why would Microsoft spend money to get these patents instead of acquiring growing mobile start-up like Instagram?

It's because of patent wars.  It's well known that high tech companies are constantly plagued with patent infringement lawsuits.  As Ben Parr wrote last week, there doesn't seem to be a week going by without someone suing someone else over patent infringement.

This is creating huge drag on all high tech companies.  It's actually a much bigger problem than people realize.  Fixing software patent laws will do lot more good to software industry than Crowdfunding Bill did.  Just imagine how many start-ups would have been funded by $1.06B.  And note that patent war spending is lot greater than that (otherwise Microsoft would not have spent the money to buy these patents from AOL).

If you don't have a good feel for extent to which software patent system is broken, I recommend you listen to This American Life: When Patents Attack:

Ultimately we as public are the ones paying for this broken software patent system through higher price and slower pace of innovation.  We should fix the software patent law.

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