Earlier this month, Microsoft agreed to buy 950 patents and patent applications from AOL, for more than $1 billion in cash. On Monday, April 23, Facebook announced it will pay $550 million to buy 650 patents from Microsoft. The deal with Microsoft comes just a couple of weeks after Facebook inked a $1 billion deal to buy mobile photo-sharing app Instagram.

Facebook's move to bolster its intellectual property comes in the wake of a lawsuit filed by Yahoo, and ahead of its highly anticipated initial public offering (IPO). The deal will grant Facebook 650 patents and patent applications, and a license to another 275 patents retained by Microsoft. The upcoming Facebook IPO is expected to be the largest in Silicon Valley history.

The Facebook deal allows Microsoft to "recoup over half of our costs while achieving our goals with AOL," said Microsoft's General Counsel Brad Smith, in a prepared statement on Monday. "As we said earlier this month, we had submitted the winning AOL bid in order to obtain a durable license to the full AOL portfolio and ownership of certain patents that complement our existing portfolio." According to Reuters, Facebook participated in the AOL auction as well.

Microsoft Bid with the Intention of Selling Patents to Facebook

Under the terms of the auction, companies could not bid jointly, and AOL did not allow bids for just part of the portfolio, reported SFGate, citing an unnamed source familiar with the matter. According to the source, Microsoft bid with the intention of reselling most of the patents, and looked at Facebook as the most likely buyer.

"(Monday's) agreement with Microsoft represents an important acquisition for Facebook," Facebook's General Counsel Ted Ullyot said in a statement. "This is another significant step in our ongoing process of building an intellectual property portfolio to protect Facebook's interests over the long term."

Citing another anonymous source, SFGate added that AOL's trove includes patents that cover email, instant messaging, search, browsing, advertising, and other Internet-related technologies, as well as handsets, e-commerce and LTE (long term evolution) wireless communications.

Facebook Aims to Bolster Intellectual Property

In an effort to protect itself from patent-infringement litigation, Facebook has now made a strategic move to bolster its intellectual property. On March 12, Yahoo filed a suit against the social network, alleging that Facebook infringed patents covering functions such as Internet advertising and information sharing. On April 3, Facebook fired back and claimed Yahoo infringed on 10 patents through its home page and Flickr photo-sharing service.

"Nothing about today's auction changes the fact that Facebook continues to infringe our patents," Yahoo stated. "Companies who purchase patents are often working from a position of weakness and take these actions to strengthen their portfolio. We see today's announcements as a validation of our case against Facebook."

(reported by Alexandra Burlacu, edited by Dave Clark)