Patent Wars: Facebook Bolsters Its Defences

Facebook has moved to protect itself from the multitude of legal battles over patents by snapping up hundreds from Microsoft.

The social networking site is to pay $550m (£340m) for 650 of the 925 patents Microsoft bought earlier this month in an auction from AOL for $1.1bn (£680m).

Facebook's general counsel Ted Ullyot called the move "another significant step in our ongoing process of building an intellectual property portfolio to protect Facebook's interests over the long term."

"Today's agreement with Facebook enables us to recoup over half of our costs while achieving our goals from the AOL auction," added Microsoft Executive Vice President Brad Smith.

Facebook also arranged to license the remaining 275 remaining patents or applications in the portfolio being bought by Microsoft, which gets the right to use the patented technology going to the California-based social network.

AOL's haul of intellectual property is believed to include technology for messaging, search, imaging, and internet telephony.

The patent deal effectively enhances a long relationship between Facebook and Microsoft that has them apparently acting as allies against a common rival - Google.

Microsoft owns a small stake in Facebook, which is expected to go public next month in a much-anticipated stock market debut that will see it trade on the Nasdaq.

Facebook could raise as much as $10bn in the largest flotation ever by an internet company on Wall Street.

It amended its filing late on Monday to report that quarterly profit slipped to $205m (£127m) from $233m (£144m ) in the same period a year ago despite a surge in revenue.

Facebook said it had accelerated research and promotion expenses ahead of its stock market debut.

It also gave details on its pending $1bn acquisition of Instagram, the company behind the popular mobile photo-sharing application.

Facebook said it is paying $300m in cash and about 23 million shares for Instagram and will pay the company a $200m termination fee if the deal doesn't go through.