Editor’s Note: Leonid (“Lenny”) Kravets is a patent attorney at Panitch, Schwarze, Belisario and Nadel, LLP in Philadelphia, PA. Lenny focuses his practice on patent prosecution and intellectual property transactions in computer-related technology areas. He specializes in developing IP strategy for young technology companies and blogs on this topic at StartupsIP. Follow Lenny on Twitter: @lkravets and @startupsIP.
In the past few months, Facebook’s patent portfolio has grown exponentially as a result of acquisitions of patent portfolios from IBM and Microsoft. After acquiring 650 AOL patents and patent applications from Microsoft, the company now has approximately 1,400 patent assets. Amazingly, only 46 of these assets (24 issued patents and 22 published applications) were originally filed by Facebook.
In recent years, Facebook has consistently looked to the outside to augment its IP holdings with strategic acquisitions of patent assets. The company paid 40 million for the Friendster social networking patent portfolio, acquired a group of patents from Walker Digital, and another from Hewlett-Packard. These deals expanded the portfolio to approximately 160 patent assets prior to Yahoo’s lawsuit being filed. After Facebook’s IPO decision, and the subsequent patent suit by Yahoo, Facebook has kicked its patent acquisition program into overdrive.
Many point to the Yahoo lawsuit as the reason for the Microsoft and IBM acquisitions. The the AOL portfolio could useful to Facebook in defending itself against Yahoo. However, now Yahoo is trying to have other patents Facebook bought after being sued by the web portal invalidated because Facebook purchased them specifically to use in a retaliatory counter-suit. In any case, it would have been significantly cheaper for Facebook to settle with Yahoo instead of taking this aggressive approach.
So who is Facebook so worried about that it would spend so much on buying intellectual property? The types of patents being acquired tell part of the story. Facebook has emphasized acquiring older assets, which it could not have developed on its own. Facebook’s oldest patent was filed in 2004, the same year the company was created. A typical patent application currently takes approximately 3-4 years to be issued. Developing a patent portfolio in the social networking space is challenging because the popularity of social networking companies has resulted in the space being littered with both patent and non-patent prior art. As a result, companies, such as Facebook, that initially largely ignored growing their IP portfolios, cannot rely on filing its own applications to develop a substantive IP portfolio.
The IBM and AOL patent acquisitions give Facebook access to IP that is significantly older than Facebook’s own IP. Older patents are subject to fewer prior art, making them more difficult to defend against. In addition, older patents provide leverage for the asserting party by allowing collection of up to six years of damages from the infringer. Such patents are therefore especially helpful in dealing with established parties having significant resources and sophisticated legal teams.
The technology areas of the IBM and AOL patents are also telling. The patents Facebook acquired from IBM are rumored to be in the networking and software space. AOL’s patents are largely directed to email, instant messaging, web browsing, search, ads, mobile, & ecommerce. Together, these are technology areas that Facebook likely never expected to find itself competing in when the company was first founded because it may not have realized that their product would evolve into the messaging/advertising/ecommerce platform that it is today. These are also technology areas that are core to Google, one of Facebook’s biggest threats.
In the past year, Google introduced Google+, a direct competitor and challenger to Facebook. While Google+ has only had moderate success to date, Facebook likely felt exposed against Google’s significantly larger and ever-expanding patent portfolio. These patent acquisitions provide Facebook with some protection as the competition between the two companies heats up. In addition, the rumors of an Android-based Facebook phone have been revived, which could bring Facebook directly into the litigious mobile space, where Google is one of the main players.
Interestingly, this is not the first time that Facebook and Microsoft have worked together with Google in mind. In October 2007, the two companies entered into an Internet advertising partnership. That deal was seen as a way for Microsoft to counter Google’s Internet advertising position. It makes sense that the two companies would again collaborate to respond to a potential threat from Google.
Thus, while the acquisitions may be helpful to Facebook in dealing with Yahoo, it is likely that these acquisitions have less to do with Yahoo than with Facebook’s anticipation of future litigation. Specifically, Facebook appears to be preparing for increased competition with Google. It bears watching whether the companies will look to their patent acquisitions as part of this strategy. Of course, such protection has the added benefit of helping to increase Facebook’s IPO value, making this decision a no-brainer for the company.