AOL and Microsoft patent sale fraud claims dismissed in court

Claims of board-level deceit are 'conspiracy theory' says federal judge

A US federal judge has dismissed a lawsuit in which AOL was accused of fraud for repurchasing 14.8 million shares in 2011 - without telling the shareholders that the company was planning to sell a portfolio of patents worth $1bn to Microsoft, a transaction that happened only months later.

The case was taken to court by disgruntled ex-shareholders in AOL, once the world's largest internet service provider, who had sold out before the portfolio deal. They claimed that they had suffered significant losses as a result, as AOL's stock value jumped by 43 per cent on the day of the patent sale.

AOL CEO Tim Armstrong and former chief financial officer Arthur Minson were even accused of deliberately buying the stock back at a discount price in order to directly benefit from the patent portfolio sale.

However, Judge Denise Cote labelled the claims "conspiracy theory" and "mere speculation", saying that it was known how valuable AOL's patent portfolio was.

She added that it was widely mentioned in press coverage at the time, and activist AOL investor, Starboard Value LP, had even publicly speculated on a $1bn value of the company's patents.

Therefore, it could be surmised that a patent sale might go through, given the company's struggling financial status.

Such evidence served to "render implausible any suggestion that the public was not aware that AOL possessed an extremely valuable patent portfolio", said Cote.

On the matter of AOL being accused of initiating a "grab back" on shares with full intention of making the patent sale, Judge Cote wrote:

"The remaining allegations in the complaint simply provide no basis for an assertion that AOL and Microsoft reached a secret deal for the sale of the patents months before the auction was conducted."