AOL has entered into a definitive agreement to sell over 800 of its patents and their related patent applications to Microsoft.
The sale of patents and a non-exclusive license to its retained patent portfolio will fetch the company over $1 billion (£630 million) in cash, AOL said.
Ailing AOL has been trying to sell its patents to raise cash, and the deal with Microsoft reflects growing interest from technology companies to acquire patent portfolios both to counter and deter patent litigation.
Facebook for example acquired 750 patents from IBM last month, as the company battles Yahoo in court in a patent dispute.
After the sale, AOL will receive a licence from Microsoft to the patents it has sold. It will also continue to hold over 300 patents and patent applications spanning core and strategic technologies, it said.
AOL did not disclose what were the patents it had sold, or in which technology areas. The deal was finalised after a competitive auction.
The transaction is expected to be completed by the end of this year, depending on regulatory approvals, including antitrust regulations.