AOL Inc. agreed Monday to sell more than 800 patents and related applications, along with a nonexclusive license to its remaining portfolio of patents, to Microsoft Corp.for about $1.1 billion.
"The agreement with Microsoft represents the culmination of a robust auction process for our patent portfolio," said AOL Chief Executive Tim Armstrong.
Inside AOL's $1 Billion Patent Portfolio
The deal comes as the race for patents has heated up in the tech space. Among other recent deals, Google Inc. GOOG -0.45% agreed to acquire Motorola Mobility Holdings Inc. MMI -0.32% last year for about $12.5 billion, partly to secure its lucrative patent portfolio, and a number of bidders pursued Nortel Networks Corp.'s patents at auction as well.
AOL shares surged 39% to $25.63 in premarket trading, while Microsoft was inactive and closed Thursday at $31.52.
AOL said it intends to return a "significant portion" of the sale proceeds to shareholders. Assuming the deal had been done at the end of 2011, AOL says it would have had some $15 a share in cash on hand.
AOL's remaining patents and patent applications include advertising, search, content generation, social networking and mapping technology. Armstrong has previously said that the company made a point of securing the patents from Time Warner Inc. TWX -0.73% when AOL spun off from them, and that the company began taking a close look at them in September.
"This is a valuable portfolio that we have been following for years and analyzing in detail for several months," said Brad Smith, Microsoft's general counsel.
The transaction is expected to be completed by the end of 2012.