Peter Kafka

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Inside AOL’s $1 Billion Patent Portfolio

Tim Armstrong has been pumping up AOL’s patents in public. Privately, he has reportedly hired bankers to shop the Web company’s portfolio.

But what does he have to sell? At an investor conference this month, Armstrong said that AOL has 700 to 800 “really important” patents, and that about half of them are “incredibly important” for Internet users.

Patent research shop Envision IP has gone through AOL’s portfolio — or at least some of it — and concludes that there’s something to Armstrong’s pitch.

It thinks there’s a lot of stuff there that is core to instant messaging and email, along with some core Web browser tech — which makes some sense, given AOL’s history and its acquisition of companies like Netscape and ICQ:

Many of these patents relate to fundamental online communication technologies, stemming from AOL’s early dominance in the instant messaging and email markets. In addition, AOL has a large number of early patents related to cache optimization, webpage rendering, search engine technologies, and multimedia compression and transmission.

While AOL does not seem to have any patents that could be deemed essential to wireless standards, it certainly owns many technologies that are fundamental to electronic and voice messaging, Internet user experience, multimedia sharing, and web-based data retrieval, technologies that have become common place in today’s online world.

The biggest chunk of this stuff, Envision thinks, relates to online messaging, which makes up more than 20 percent of the portfolio.

How much is that worth? Starboard Value, the fund that has started a proxy battle with Armstrong, thinks it could generate $1 billion in licensing value. We’ll see what AOL’s bankers are able to fetch.

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Just as the atom bomb was the weapon that was supposed to render war obsolete, the Internet seems like capitalism’s ultimate feat of self-destructive genius, an economic doomsday device rendering it impossible for anyone to ever make a profit off anything again. It’s especially hopeless for those whose work is easily digitized and accessed free of charge.

— Author Tim Kreider on not getting paid for one’s work