AOL to sell 800-plus patents to Microsoft

AOL Inc., under shareholder pressure to make changes as revenue shrinks, agreed to sell and license patents to Microsoft Corp. in a transaction valued at $1.06 billion, triggering its biggest stock gain in two years.

AOL shares rose 43 percent to $26.40 at the close in New York, the biggest one-day increase since Nov. 25, 2009. The shares had lost 8.2 percent of their value in the past year before yesterday. Shares of Microsoft, meanwhile, fell 1.33 percent to $31.10.

The arrangement, which will give more than 800 patents and related applications to Microsoft, lets Manhattan-based AOL generate additional funds amid slow advertising growth and a decline in dial-up Internet subscribers. AOL, whose revenue has dropped 29 percent since it was spun off from Time Warner Inc. in late 2009, has faced pressure from a large shareholder, Starboard Value Lp, to consider moves such as a patent deal.

"Few people were anticipating that they were going to generate $1 billion-plus of cash," said Tom Forte, an analyst at Telsey Advisory Group in New York.

Microsoft, the world's biggest software maker, is adding the patents as it tussles with Motorola Mobility Holdings Inc. in the courts to protect intellectual property rights related to the Windows Phone operating system and Xbox video-gaming consoles. Technology giants such as Apple Inc. and Google Inc. also are building patent war chests in an effort to fend off litigation and defend their products.

Microsoft gains nonexclusive license to AOL's retained patent portfolio, the companies said yesterday in a statement. AOL will hold more than 300 patents and applications after the transaction. Microsoft, which had $52.7 billion in cash and equivalents last year, is trying to keep the patents away from competitors, said James Conley, a professor at Northwestern University who studies patents.

Kevin Kutz, a spokesman for Microsoft, said the company historically has used patents more for licensing than lawsuits.