'The AOL Cigar Is A Lot Longer Than People realised'

tim armstrong, braveheart, fire

Photo: Illustration by Business Insider

CEO Tim Armstrong has an innovative new business plan for AOL.Or maybe not.

Looks like he’s ready to sue over patents, just like Yahoo. Here’s a transcript of his comments from this morning via Bloomberg. (It’s a little messy in places, we’ve tried to edit for clarity where we could.)

Barclays analyst Anthony DiClemente: There’s been some recent discussion out there about AOL’s patent portfolio. I wonder if you could talk a little bit about your – give us your view on the value of your patent portfolio and how do you think you might realise that value or monetise that value.

Tim Armstrong: Yes. So, the patent portfolio is something we started looking at last probably September, and we had kicked off a process last September because of the interest in IP and patents, and we have a lot of incoming interest in AOL patent portfolio.

So, to basically summarize AOL’s patent portfolio, it’s beachfront property in East Hampton. I don’t know who – I don’t know — I don’t go to the Hampton. But it’s basically extremely valuable.

It is unique in the fact that it has some of the foundation patents for the Internet inside of it. There’s roughly 160 or so patent portfolios in the marketplace right now. I would consider our patent portfolio to be probably top three, if we were take it out to the marketplace.

And when you think about patent because patent is basically dropping to a few different buckets. One is there’s basically a set of standard patents that people have been licensing and getting revenue off of them, so that’s the Kodak situation where most of their patents basically were – had been licensed out already and they were 30 or 40 major companies that had licensed their patent portfolio.

So, one is that’s a great revenue stream. But if you want to transact in that patent portfolio, you would have less of a value in terms of selling it. And when you look at something more like Nortel which had probably less licensees of it and more unique kind of what they call foundational patents in it.

So, AOL’s we haven’t – we’ve specifically – I mean when we go spending out at Time Warner, this was a huge negotiation and I’ve spent a lot of personal time on it than some of our folks did, because we knew at some point in the future, the IP was going to be valuable.

So, we negotiated for a few months in a way that Time Warner and got our pattern portfolio set up. And when you think about basically the opportunity to use the patent portfolio or some of our IP around it, it basically comes down on the following things. One is we have to protect our company on a go-forward basis from an operating standpoint. Two, is you have to measure your portfolio again. So, what’s in the marketplace today and what is foundational versus non-foundational in terms of the patents. And we have a very foundational patent portfolio, about half of our patent portfolio.

DiClemente: Foundational?

Tim M. Armstrong: Well, if you have a foundational patent, it means it basically hasn’t been to the market yet. It’s not industry standard licensed and it doesn’t have a kind of set industry business rule around it. So, it’s the equivalent of the people who have gone like Kodak and licensed a lot of their patents.

There’s kind of an industry regulation around the licensing fees you can charge for those things, There’s a set of patents that have not been put out in the marketplace before and have not been licensed and are very core to the industries they’re in from a technology standpoint. AOL’s patent portfolio is almost 100% in that foundational category, about half of them, 700 or 800 patents.

We actually have over 1,000, but there’s about 700 to 800 that are really important. And out of those, about half of those are kind of level four or level five patents, meaning they’re incredibly important and valuable.

cuba cigar

Photo: Wikimedia Commons

So, when you think about that from a standpoint of an investor and we think about it internally is, “Is there an opportunity to monetise part of those – that patent portfolio?” The answer is yes. That’s why we started looking at it. Before, you just have to do it carefully and thoughtfully. And that’s basically what we’re working through. But I mean, I would say, I said this when I joined the company, people thought AOL – I will go back to the one-puff analogy of how many cigar puffs are left in the AOL cigar which I think most people have probably though there weren’t left. But we have a tremendous amount of assets at the company. You think about all the operational stuff I just talked about. You think about our patent portfolio. You think about our IP, some of those things.I mean, the AOL cigar is a lot longer than people realised. And I think the cigar has grown over the last couple of years. So, I think when you think about the patent portfolio, we should think about it as one set of the assets, we have, but you should assume we understand that portfolio and assume we have a strategy on it.

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