IBM sold Twitter 900 patents for A$40 million

Microblogging service Twitter paid IBM US$36 million (A$40 million) to acquire 900 of its patents after Big Blue threatened to take action over alleged patent infringements.

In Twitter’s first annual financial results, released on Friday, the company revealed it had forked out $36 million to IBM following a threat it received last year over the alleged infringement of at least three IBM patents.

The threat was made on the eve of Twitter’s IPO in early November.

In a filing to the US Securities and Exchange Commission at the time, Twitter revealed IBM had accused it of infringing three of its patents: the 6,957,224 patent for “efficient retrieval of uniform resource locators”, patent 7,072,849 for “method for presenting advertising in an interactive service”, and patent 7,099,862 for “programmatic discovery of common contacts”. 

Twitter said at the time the communication was made not in the form of a lawsuit, but as a letter “inviting us to negotiate a business resolution of the allegations”. 

Despite believing it had “meritorious defences to IBM’s allegations”, Twitter admitted it had no assurance it would be either successful in defending against the allegations or reaching a satisfactory resolution. 

It decided to purchase the 900 patents, and at December 31 2013 had 956 patents on its books, compared to June 30 of that year when it had only six. IBM is understood to have around 41,000 patents in its arsenal. 

In the filing Twitter claimed companies in the technology industry frequently enter into litigation based on allegations of violations of intellectual property rights, and the comparatively small size of its patent and IP portfolios put it at a disadvantage when defending against such claims. 

“From time to time we receive claims from third parties which allege that we have infringed upon their intellectual property rights. In this regard, we recently received a letter from [IBM], alleging that we infringe on at least three US patents held by IBM, and inviting us to negotiate a business resolution of the allegations,” it said.

“In December 2013, we acquired over 900 patents from IBM, which significantly increases the size of our patent portfolio and entered into a patent cross-license.”

The $36 million price tag equates to over five percent of Twitter’s 2013 $665 million revenue. The company reported a $645 million net loss for the full year.