AOL (NYSE:AOL) scored a $1.06 billion transaction on Monday to sell more than 800 coveted patents to Microsoft (NASDAQ:MSFT) and give the tech giant non-exclusive license to other patents.

New York-based AOL said it plans to return a significant chunk of the proceeds to shareholders.

Wall Street cheered the news, sending shares of AOL surging as much as 40%.

"The agreement with Microsoft represents the culmination of a robust auction process for our patent portfolio," AOL CEO Tim Armstrong said in a statement. "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."

Microsoft beat out Facebook and Google (NASDAQ:GOOG) in the auction, Reuters reported.

"This is a valuable portfolio that we have been following for years and analyzing in detail for several months," said Brad Smith, Microsoft's general counsel.