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Judge bins lawsuit alleging AOL patent sale conspiracy theory

Court rules that $1bn flogoff to Microsoft wasn't a secret deal

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A US judge has dismissed a case against AOL and some of its top execs over their repurchase of millions of shares in 2011 without letting on that the company was planning to sell a $1bn patent portfolio to Microsoft.

A shareholder had sued AOL, its chief exec Tim Armstrong and CFO Arthur Minson, saying that they knew about the planned sale long before it was announced publicly and bought back 14.8 million shares of its own stock.

Once the patent portfolio sale was outed, AOL's stock shot up 43 per cent in a day. The plaintiff alleged, on behalf of herself and other shareholders, that they suffered significant losses from selling stock ahead of the sale because the share price was "artificially deflated by defendants’ failure to disclose information about the patent sale and misleading statements that implied that no such sale was imminent".

But Judge Denise Cote said that her "conspiracy theory" was just speculation, based on rumours on a technology blog. She pointed out that the value of the patent portfolio was well known, as was the fact that AOL was looking for a buyer, so the only way that fraud could have been committed is if the defendants knew the exact terms of the deal ahead of time.

"The facts in the Complaint are simply not sufficient to support the belief that AOL and Microsoft reached a secret deal for the patent portfolio and jointly orchestrated a sham auction to cover up the $1 billion transaction so that AOL could repurchase a portion of its own stock," the judge said in her decision.

Cote said that the blog post didn't cite any source for its speculation so couldn't be used as evidence of a secret agreement. The plaintiff did not have sufficient other evidence to back up the idea that Microsoft and AOL had already signed a deal. ®

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