There is an unfortunate trend in American business today. With yesterday’s news of the AOL patent auction, I can emphatically state that the last refuge of a troubled company is their patent portfolio. Kodak, Yahoo!, and now AOL are all leveraging their patents in an attempt to turn their fortunes around, increase their stock price, and get some much needed cash, be it through outright sale (AOL) or through patent litigation (Kodak and Yahoo!). Unfortunately, it’s a strategy that will fail. Not because their patent aren’t valuable, but because it’s too little too late.
In the latest incarnation of the trend, AOL sold 800 patents to Microsoft for over $1billion, and kept 300 key patents and patent applications for future use. The beleaguered internet company saw its stock price hit a 52 week high on the news. In a statement about the patent sale, AOL’s Chairman and CEO, Tim Armstrong, stated:
“We continue to hold a valuable patent portfolio…The combined sale and licensing arrangement unlocks current dollar value for our shareholders and enables AOL to continue to aggressively execute on our strategy to create long-term shareholder value.” (Emphasis added.)
Congratulations to AOL on finally realizing that their patent portfolio is a business asset, has value, and can be leveraged. In fact, good for them for leveraging it in such a way that they were able to sell off some of their chaff and keep some wheat. They now have cash and a better stock price today because they sold some patents, but it doesn’t fix their underlying problems.
Unfortunately, this sale didn’t really improve the long-term future of the company. As Ben Popper reported in Venture Beat:
“While it’s true that AOL still retained some patents and will be able to license them to other players, this seems like a one time deal that represents a large portion of the value AOL held in its patents. The emphasis on returning the money to shareholders seems to indicate that AOL is hoping to goose its stagnant stock price with the promise of a payout, giving Armstrong more breathing room as he looks to turn the media/advertising business around.” (Emphasis added.)
AOL has time and money, but will it get them a ‘product’ that people want to invest in? I mean, isn’t that the only ‘real’ solution to AOL’s woes?
Shame on AOL (and Kodak and Yahoo!) for not recognizing the value in their portfolio sooner! The truth is AOL needed to use its IP years ago when it still had the chance to build the business. Now it can only use its patents as a stopgap measure to boost share price in the short term. They’re too far down the proverbial rabbit hole for any patent to help them out.
The real inquiry is ‘what should these troubled companies have done with their patents’? Why weren’t they using their valuable portfolios already? Seriously, why wasn’t their intellectual property part of their business strategy from the very beginning?
Of course that’s a rhetorical question. I already know why. They only cared about getting the patents. No one told them that possessing patents isn’t enough. It’s how you use them that matters.
Could the fates of Kodak, Yahoo! and AOL been different had they leveraged their IP portfolios before the ‘writing was on the wall’? You can never know for sure given the multitude of decisions that go on in any company. Maybe at one time AOL could have used their patents to achieve their business strategy, and found success, but I think that time is over. Their patents can’t save them from their past mistakes and their lack of strategy.
UPDATE: On April 23, 2012, Microsoft announced that it sold some 650 patents and applications it acquired from AOL to Facebook for $550 million in cash. Facebook will also license the remaining patents (~275 assets) that Microsoft obtained in the AOL deal.