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Why Facebook Is Spending $550 Million On Patents

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Facebook is shelling out $550 million to buy 650 patentsfrom Microsoft , snapping up about 70 percent of the patent portfolio Microsoft agreed to buy from AOL. Facebook is also buying a license to the AOL patents and applications that Microsoft will own.

So why is Facebook shelling out this kind of cash for patents?

Simple: Silicon Valley patent wars are heating up and Facebook wants to protect itself against some potentially very pricey litigation. It’s no surprise that this acquisition comes after Yahoo sued Facebook last month, alleging patent infringement.

Facebook has said in the past that it “prioritizes innovation over litigation but others don’t necessarily share the same view.” And this is a $550 million investment in avoiding other lawsuits.

This deal – which was in the works as soon as Microsoft closed with AOL on the deal—speaks to the close relationship between Microsoft and Facebook. Microsoft invested $240 million in Facebook back in 2007 and the two companies struck a search deal. That partnership allied the social network and the tech giant against Google . This latest partnership could indicate that Microsoft is supporting Facebook as it fends off the lawsuit from Yahoo , an issue Microsoft is aware of, saying it values its relationship with both Yahoo and Facebook.

Patents are only going to become more important in silicon valley as tech, internet, and social media giants all fight for consumers time. We can expect more big paychecks—and more high-price litigation as these players sort out who controls what.

Questions? Comments? MediaMoney@cnbc.com

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  • Working from Los Angeles, Boorstin is CNBC's media and entertainment reporter and editor of CNBC.com's Media Money section.