Twitter to Buy a Large Number of Patents From IBM

Twitter revealed this week that it spent $36 million to buy over 900 patents from IBM.

In its annual 10-K report to the Securities and Exchange Commission, Twitter revealed the cost of the patent purchases totaled $36 million, an average of $40,000 per patent.

The purchase is likely a move to head off allegations of patent infringement. IBM warned Twitter of its intent to file infringement lawsuits shortly after the microblogging site went public on the New York Stock Exchange last November. Before its IPO, Twitter held only nine patents; now that number has grown to almost 1000. Twitter’s investors must be asking themselves if the purchase was a legitimate resolution of patent infringement, or simply an act of patent imperialism on the part of IBM.

Some of the patents appear to be necessary to Twitter’s business plan, such as those concerned with improved methods of video compression and delivery, instant messaging, and automated compliance with international shipping regulations that should help Twitter become an effective online-retail interface. However, of the three main patents cited by IBM in its November letter of complaint to Twitter, only one, related to interconnected computers, has changed hands between the two companies.

Either way, Twitter spent about 5% of its annual revenue to acquire IBM’s patents, and there’s no assurance for investors that another major technology firm won’t threaten more infringement lawsuits in the future.

The only solid winner is IBM. Big Blue practically holds the patent on patents; licensing fees alone net the company $1 billion annually. Recall Microsoft and Apple’s patent war on the Android platform back in 2011, which abated only after Google purchased thousands of patents from IBM to hedge against the onslaught of infringement lawsuits. Patents were meant to encourage innovators and invention, not to simply be currency in a high-tech protection racket.

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