Update 2 p.m. Pacific: AOL stock closed up 43 percent for the day. News hit the wires this morning that AOL plans to sell 800 of its 1,100 patents to Microsoft for $1 billion in cash, money CEO Tim Armstrong says will be used to repay AOL shareholders. This one-time transaction also grants Microsoft a non-exclusive license to to the 300 remaining patents, which cover key technologies such as advertising, search, content generation/management, social networking, mapping, multimedia/streaming, and security.

Like Yahoo, AOL is an aging internet giant struggling to produce meaningful technologies and grow its business. Both are looking to unlock value from their vast trove of patents, but while Yahoo has gone down the legal road, suing Facebook, AOL has decided to simply sell. The $1.056 billion it got from Microsoft is pretty much exactly what bankers estimated its patents would be worth.

Markets responded favorably to the news, adding 43 percent to AOL’s share price, which closed at $26.40. That gives the company a market capitalization of $2.5 billion, or about $750 million more than it had this morning.

“The agreement with Microsoft represents the culmination of a robust auction process for our patent portfolio,” said Tim Armstrong, AOL’s chairman and chief executive, in a statement. “We continue to hold a valuable patent portfolio as highlighted by the license we entered into with Microsoft. The combined sale and licensing arrangement unlocks current dollar value for our shareholders and enables AOL to continue to aggressively execute on our strategy to create long-term shareholder value.”

“This is a valuable portfolio that we have been following for years and analyzing in detail for several months,” said Brad Smith, general counsel for Microsoft. “AOL ran a competitive auction and by participating, Microsoft was able to achieve our two primary goals: obtaining a durable license to the full AOL portfolio and ownership of certain patents that complement our existing portfolio.”

While it’s true that AOL still retained some patents and will be able to license them to other players, this seems like a one-time deal that represents a large portion of the value AOL held in its patents. The emphasis on returning the money to shareholders seems to indicate that AOL is hoping to goose its stagnant stock price with the promise of a payout, giving Armstrong more breathing room as he looks to turn the media/advertising business around.