Starboard Value, a major AOL shareholder with approximately 5.3% of the company’s outstanding shares, has been making a lot of noise lately with its complaints about AOL management’s strategic, financial and product decisions, as well as the stock’s lackluster performance.

If you thought the activist fund would back off now that AOL turned much of its intellectual property into dollars by selling 800 and licensing 300 patents to Microsoft in a $1 billion+ cash deal, you might want to reconsider.

Starboard this morning published a long letter to AOL’s board of directors, in which it commends and applauds them and the company’s management for taking a “meaningful first step in unlocking value for AOL shareholders”.

And then, of course, come the stings:

However, the announced sale of the patents does little to address our serious concerns with the Company’s poor operating performance and substantial losses in the Display business. We estimate that AOL’s Display business is currently losing over $500 million per year, including $150 million in Patch alone.

Patch is an unproven and, thus far, unsuccessful business model that is draining valuable resources from the Company.

Unfortunately, to date, management and the Board have been unable to meaningfully improve profitability in the Display business and unwilling to consider alternative strategies to realize value from these assets.

Conversely, recent public comments by management demonstrate that AOL remains committed to the status quo in its Display business – which we find unacceptable.

For your information, Patch is a platform of now over 850 hyperlocal news, information and engagement sites acquired by AOL in 2009.

Starboard adds that the “underperforming Display business appears to be substantially weighing down AOL’s potential valuation” and blasts the company’s “dismal track record of capital allocation”.

Pro forma for the patent sale, we estimate that AOL will have approximately $1.43 billion of cash, or $15.35 per share. This represents more than half of the current market capitalization.

AOL has a dismal track record of capital allocation, having spent $2.3 billion on acquisitions since 1999 and recording a goodwill impairment charge of approximately $1.4 billion during 2010 alone.

Yesterday, AOL said it would “return a significant portion of the sale proceeds to shareholders”, but that’s not going far enough for Starboard, which thinks the company should be returning all of them.

Starboard also says it intends to file preliminary proxy materials with the SEC for the election of directors to the AOL board at the upcoming 2012 Annual Meeting, as “the announced sale of AOL’s patents does not address the need for substantial improvement in the operating performance of the company”.

Starboard, founded in March 2011, was created through a spin-off transaction from Ramius, the investment management subsidiary of the Cowen Group.

Expect AOL to respond to them promptly, painting a much more beautiful picture.

(Note: AOL was my employer until very recently)