Judge throws out lawsuit against AOL in Microsoft patent dispute

A judge has dismissed a lawsuit which accused software company AOL of fraud relating to a billion dollar sale of patents to rival Microsoft.

Some of the company’s executives had been accused by shareholders of secretly repurchasing more than 14 million shares shortly before implementing a deal it had made with Microsoft to sell a portfolio of patents worth $1.6 billion.

AOL said at the time of the sale that all proceeds from the sale of the 800 patents would be returned to its shareholders.

But shareholders claimed that, by knowing the deal was imminent, chief executive Tim Armstrong and former chief financial officer Arthur Minson were able to buy back the shares at a discounted rate without making it public.

Immediately after the sale, stock swelled nearly 43 percent in 24 hours and the shareholders, who sold their shares ahead of the deal, claim they suffered large financial losses as a result.

But, the case was thrown out on August 19 at the US District Court for the Southern District of New York.

There, District Judge Denise Cote ruled that the complainant’s “conspiracy theory” was “mere speculation" based on rumours on a technology blog adding that no adequate examples of factual omissions by AOL executives prior to the sale were brought to the table.

Judge Cote also stated that the accusations "provide no basis for an assertion.”

"The facts in the complaint are simply not sufficient to support the belief that AOL and Microsoft reached a secret deal for the patent portfolio and jointly orchestrated a sham auction to cover up the $1 billion transaction so that AOL could repurchase a portion of its own stock," Cote said.

Cote also pointed out that the value of the patent portfolio was well known, as was the fact that AOL was looking for a buyer, so the only way that fraud could have been committed is if the defendants knew the exact terms of the deal ahead of time.