Microsoft trumped Amazon, eBay and other tech giants with its more than $1 billion purchase of the majority of AOL Inc's patent trove. 
 
 AOL said it was selling more than 800 patents related to advertising, search, e-commerce and mobile to Redmond, Wash-based company, surprising investors with the size of the deal and sending AOL shares up more than 40 percent. 
 
 The sale includes technology rights from AOL's current and former businesses, ranging from Netscape, ICQ and MapQuest to CompuServe, Advertising.com and others, according to a source close to the matter. 
 
 The sale process, which AOL Chief Executive Tim Armstrong described as a "full-blown dynamic auction," started last fall after board approval. 
 
 Armstrong said he made a call to Microsoft Chief Executive Steve Ballmer alerting him of the decision to sell the patents. 
 
 The auction included e-commerce companies Amazon and eBay, both of which have been largely absent from the recent patent wars, as well as Google and Facebook, according to the source. 
 
 Spokesmen for Google, Facebook, eBay and Amazon were not immediately available for comment. 
 
 A final buyer was selected late on April 5, Armstrong said. 
 
 Technology companies in recent years have sparked a frenzy for patents, bidding up prices in a defensive move to keep competitors at bay. 
 
 The AOL deal is one of the larger patent auctions in recent times, representing roughly $1.3 million per issued patent, according to the source. 
 
 That compares with the bankrupt Nortel Networks patent auction last year -- considered a blowout $4.5 billion sale of its 6,000 patents -- for roughly $1.05 million per issued patent, the source said. 
 
 The Nortel deal sparked a wave of patent sales and litigation and played a part in AOL's decision to launch a patent auction. 
 
 Google is in the process of buying Motorola Mobility Holdings for $12.5 billion mainly for its intellectual property. Google also acted as the stalking-horse bid for Nortel Networks' wireless patents. 
 
 Microsoft was part of the group led by Apple Inc that won the Nortel patents. 
 
 Yahoo has launched a lawsuit against rival Facebook for patent infringement involving advertising. 
 
 SURPRISING PRICE TAG 
 
 AOL and Microsoft are no strangers to partnerships. Last year the two companies along with Yahoo formed an advertising alliance. 
 
 Microsoft's latest move with AOL proves it is keen on shoring up its patent portfolio. 
 
 "Investors had anticipated little to no value for the portfolio - a few hundred million at the most," said Clayton Moran, an analyst with Benchmark. 
 
 AOL said a "significant portion" of the proceeds would be passed on to its shareholders. 
 
 As part of the deal, AOL will continue to hold more than 300 patents related to key strategic areas for the company, including advertising, search, and social media, and will receive a license to the patents being sold to Microsoft. Also, Microsoft will be granted a non-exclusive license to the patents AOL retains. 
 
 "We think this move is a big win for AOL in both the speed at which the sale was made and the actual amount it received," wrote Anthony DiClemente, an analyst with Barclays Research. 
 
 AOL shares soared $7.87 to $26.29 in afternoon trade. 
 
 One of the pioneering companies during the early days of the Internet, AOL was known for e-mail and dial-up access services. It has been trying to reshape itself into a media and entertainment powerhouse dependent on advertising revenue. 
 
 Activist shareholder Starboard Value LP had pressed AOL management to pursue a patent auction, arguing the portfolio could produce more than $1 billion in licensing income if properly monetized. 
 
 The deal, expected to be completed by the end of 2012, includes the sale of an AOL unit, on which AOL expects to record a capital loss for tax purposes. 
 
 AOL said it expected to use about $40 million of its existing deferred tax assets -- 20 percent of its total -- to offset any ordinary income taxes resulting from the licensing of its remaining patent portfolio. 
 
 Evercore Partners and Goldman Sachs acted as financial advisers to AOL. Wachtell, Lipton, Rosen & Katz and Finnegan, Henderson, Farabow, Garrett & Dunner acted as legal counsel. Covington and Burling LLP offered legal advice to Microsoft. 
 
 If the deal falls through, Microsoft may pay AOL a termination fee of $211.2 million, AOL said in a regulatory filing. 
 
 (Additional reporting by Sayantani Ghosh in Bangalore and Greg Roumeliotis in New York; Editing by Supriya Kurane and John Wallace) 

 Huge news this morning: Web services giant AOL (note: my employer until very recently) and Microsoft have struck a deal that will see the former sell more than 800 of its patents to the Redmond software juggernaut. In addition, Microsoft will (non-exclusively) license more than 300 additional patents and applications. 
 
 Aggregate proceeds of the agreement is a whopping $1.056 billion, in cash. 
 
 At December 31, 2011, AOL had only $407.5 million of cash. Pro forma for the sale and license, as of December 31, 2011, AOL would have had roughly $15 per share of cash on hand, it said. Its market cap was $1.75 billion at the last market close. 
 
 According to the terms of the deal, AOL will retain over 300 patents and patent applications spanning technologies for advertising, search, content management, social networking and mapping, among others, following the sale. 
 
 AOL also received a ‘perpetual’ license to the 800 patents being sold to Microsoft. 
 
 AOL expects the deal, which includes the sale of a subsidiary on which AOL expects to record a capital loss for tax purposes, to be completed by the end of 2012, pending satisfaction of customary conditions and regulatory approvals. 
 
 Update: AllThingsD says the subsidiary in question is … Netscape. 
 
 For some insight into AOL’s overall intellectual property, check Envision IP’s recent dive into its patent portfolio (see screenshot below, via AllThingsD). 
 
 Tim Armstrong, AOL’s chairman and CEO, in a statement said the deal with Microsoft is “the culmination of a robust auction process” for its patent portfolio. 
 
 Armstrong had been pumping up AOL’s patent trove in public to anyone on Wall Street who would listen a lot lately, as recently reported by AllThingsD. 
 
 It’s not surprising that AOL sought to monetize its patents in some way, with pressure from shareholder Starboard Value and others mounting of late. 
 
 Now that AOL has turned a great deal of its patents into dollars, a transaction that it says is “tax-efficient” and will result in a significant return to shareholders, it’s worth asking the $1.056 billion question: what is Microsoft going to do with these patents? 
 
 (Sidenote: Microsoft is an investor in Facebook and a partner of Yahoo – both companies currently embroiled in bickering over social networking patents.) 
 
 Full press release (AOL subsidiary TechCrunch also published its memo to staff): 
 
 AOL and Microsoft Announce $1.056 Billion Patent Deal AOL to sell more than 800 patents to Microsoft; Microsoft to license more than 300 additional patents and patent applications from AOL Transaction is tax-efficient for AOL Upon closing, AOL expects to return a significant portion of the proceeds to shareholders NEW YORK–(BUSINESS WIRE)–AOL Inc. (NYSE: AOL) (the “Company”) today announced that the Company has entered into a definitive agreement to sell over 800 of its patents and their related patent applications to Microsoft Corporation (NASDAQ: MSFT) (“Microsoft”) and to grant Microsoft a non-exclusive license to its retained patent portfolio for aggregate proceeds of $1.056 billion in cash. “The agreement with Microsoft represents the culmination of a robust auction process for our patent portfolio” Following the sale, AOL will continue to hold a significant patent portfolio of over 300 patents and patent applications spanning core and strategic technologies, including advertising, search, content generation/management, social networking, mapping, multimedia/streaming, and security among others. AOL also received a license to the patents being sold to Microsoft. The patent sale includes the sale of the stock of an AOL subsidiary upon which AOL expects to record a capital loss for tax purposes and as a result, cash taxes in connection with the sale should be immaterial. Additionally, AOL expects to utilize approximately $40 million of its existing deferred tax assets, representing approximately 20 percent of its total deferred tax assets, to offset any ordinary income taxes resulting from the license of its remaining patent portfolio. AOL management and its Board of Directors intend to return a significant portion of the sale proceeds to shareholders and will determine the most efficient and effective method to do so prior to the closing of the transaction. Pro forma for the sale and license, as of December 31, 2011, AOL would have had approximately $15 per share of cash on hand. “The agreement with Microsoft represents the culmination of a robust auction process for our patent portfolio,” said Tim Armstrong, AOL’s Chairman and CEO. “We continue to hold a valuable patent portfolio as highlighted by the license we entered into with Microsoft. 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.” “This is a valuable portfolio that we have been following for years and analyzing in detail for several months,” said Brad Smith, General Counsel and Executive Vice President, Legal and Corporate Affairs, Microsoft. “AOL ran a competitive auction and by participating, Microsoft was able to achieve our two primary goals: obtaining a durable license to the full AOL portfolio and ownership of certain patents that complement our existing portfolio.” The transaction is expected to be completed by the end of 2012, upon the satisfaction of customary conditions and regulatory approvals, including expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. Evercore Partners and Goldman Sachs acted as financial advisors and Wachtell, Lipton, Rosen & Katz and Finnegan, Henderson, Farabow, Garrett & Dunner acted as legal counsel to AOL in connection with the transaction. 
 
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– AOL has struck a mammoth deal to sell Microsoft more than 800 patents for $1.06 billion in cash, the companies announced today. That will leave AOL with a little more than 300 patents of its own related to search, advertising, and social networking, among other things, but it will also have a "perpetual license" for the patents it's selling, according to The Next Web. AOL stock shot up 37% on news of the deal, according to Reuters, which makes sense, given that the company is promising that a "significant portion of the sale proceeds" will go to shareholders. AOL has been trying to auction off its patent portfolio for at least a month, in part thanks to mounting pressure from Starboard Value, a major shareholder that has expressed concern over AOL's management.