Original URL: http://www.theregister.co.uk/2012/03/22/facebook_buys_750_ibm_patents/

Facebook said to bag 750 IBM patents in IPO prep

Buying protection from inevitable lawsuit onslaught

By Rik Myslewski

Posted in Business, 22nd March 2012 22:38 GMT

Facebook has reportedly acquired 750 patents from IBM in the run-up to its IPO, presumably to protect itself from future patent-infringment litigation.

So says "a person with knowledge of the transaction", speaking with Bloomberg.

The acquisition would vastly increase Facebook's patent cache, which currently stands at "at least" 56, according to Bloomberg, with another 503 patent applications filed with the US Patent and Trademark Office.

Although the addition of 750 patents would be a vast increase in Facebook's patent-litigation arsenal, that number is a mere drop in the bucket for Big Blue, which last year set a new record for US patents, with 6,180 granted by the USPTO – the nineteenth consecutiive year that IBM has led the world in the granting of US patents.

When Facebook announced its upcoming IPO last month, it noted in its SEC Form S-1 filing that it expected patent litigation to be part of its future. "As we face increasing competition and gain an increasingly high profile, including in connection with our initial public offering," the filing reads, "we expect the number of patent and other intellectual property claims against us to grow."

A few weeks after that filing, Yahoo! fulfilled that prophecy by launching a patent-infringment suit against Zuckerberg & Co., in what The New York Times had said two weeks before was an attempt to pressure Facebook into licensing deals for patents that Yahoo! claims Facebook is infringing upon in the areas of advertising, personalization, social networking, and messaging.

As noted in the SEC filing, Facebook realizes that "We may have to seek a license to continue practices found to be in violation of a third party's rights, which may not be available on reasonable terms, or at all, and may significantly increase our operating costs and expenses."

Although Facebook has been the target of patent litigation before, the Yahoo! lawsuit, if successful, may be the first to take a significant bite out of Facebook's bottom line.

The acquisition of IBM patents may be a necessary defensive move by Zuckerberg. After all, as a comparatively young company – Facebook was launched a mere eight years ago – the überpopular social-networking site may have a massive following, but its patent portfolio is dwarfed by those of more-mature companies.

But it's not that Facebook doesn't have the wherewithal to make a raft of strategic patent purchases. Estimates for the company's valuation at the IPO have ranged into the $100bn zone – so high that California tax analysts have given them their own line item in the state's personal income tax estimates for the next few years.

Facebook will likely be able to afford whatever patents it feels it may need to protect itself. What will be interesting to watch, however, will be how much the holders of sufficiently protective patents will be able to squeeze out of Facebook in tough negotiations if the company goes on a protection-purchasing binge. ®