Twitter paid IBM $36 million to acquire patents and avoid a lawsuit

Posted Mar 9, 2014

On Thursday, Twitter revealed their first annual financial results. In the document, it was revealed that Twitter paid IBM $36 million for a group of patents. Why did Twitter buy the patents?

Twitter received a letter from IBM in November saying that the social media company was in violation of three IBM patents. Twitter received a license to IBM’s patents and acquired 900 patents from “Big Blue” (nickname for IBM).

At the time of the acquisition, Twitter said that the patents would protect them from competitors. IBM threatened Twitter right before the IPO so it was likely that the management team at the social media company wanted to avoid any litigation headaches.

IBM has the most number of patents over any other company and generates around $2 billion annually from licensing, according to Ars Technica. The $36 million patent acquisition is over 5% of the company’s 2013 revenues. Twitter reported $665 million in 2013 revenue.

Twitter reported a net loss of $34.3 million for the year. This means that Twitter may have reported a profit if it wasn’t for those meddling patent licensing executives at Big Blue.

The three patents that IBM asserted against Twitter were:
– US 6,957,224: Efficient retrieval of uniform resource locators
– US 7,072,849: Method for presenting advertising in an interactive service
– US 7,099,862: Programmatic discovery of common contacts

[Source: Ars Technica]