AOL Has Patents, But Will it Behave Like Yahoo?

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

NEW YORK ( Trefis) -- After Yahoo! ( YHOO) sued Facebook for patent infringement, a recent report suggests that AOL ( AOL) is trying to make it clear that it also has "patent power."

The big question is how would AOL use its patents and for what purpose? So far it sounds like the company is trying to keep them for strategic purposes, which it could later monetize them in a sale similar to Nortel's $4.5B sale of patents to Apple ( AAPL) and Microsoft ( MSFT). Or could it file a lawsuit against an existing tech giant in the hopes of a settlement or some sort of royalty like Yahoo!?
See our complete analysis for AOL's stock here.

The difference between the strategies of AOL and Yahoo! also stems from their respective leadership. Yahoo's new CEO Scott Thompson is clearly much more aggressive in his approach, having announced hefty job cuts. In short, the decision to sue Facebook over its patents was likely an impact of Thompson coming into the fray, as previously the company had a policy of using patents primarily for defensive purposes.

Tim Armstrong, on the other hand, continues to believe in monetization of AOL's Web properties, especially the company's recent acquisitions like HuffPo. While leadership challenges persist for AOL as well, the display ad revenue growth it has shown in the past few quarters would certainly provide it with some cushion compared to Yahoo!. Having said that, AOL's 700 to 800 patents could be a last resort for Armstrong if the need arises. These patents have the potential of generating up to $1 billion in annual licensing income, according to some estimates.

We have a revised price estimate of $16 for AOL stock , which is about 10% below the current market price.

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This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.