Acacia Research Corporation (Nasdaq: ACTG), which in some circles is known as the mother of all patent trolls, announced today that a wholly-owned subsidiary has become the General Partner of the newly formed Acacia Intellectual Property Fund, L.P. An institutional investment group is the lead limited partner of the Fund, who together with the subsidiary, have provided a total of $27 million as an initial funding commitment.
According to the press release, Acacia Intellectual Property Fund, L.P. will acquire, license and enforce intellectual property consisting primarily of patents, patent rights, and patented technologies. The Fund is authorized to raise up to $250 million, which should strike fear in the hearts of all of the likely targets of patent infringement lawsuits, namely those that make high tech products.
According to a Business Week article from earlier this year, “Acacia has filed at least 337 patent-related lawsuits in its 18 years.” With an infusion of $27 million in initial funding and up to another $223 million on the way, it all but certain that this widely regarded patent troll will be accumulating more patents and going after more high profile targets. It seems reasonable to consider whether this extremely high profile patent troll could with this announcement jump start the seemingly dead patent reform efforts in Congress.
“Acacia has built a leadership position in patent licensing, generated over $350 million in patent licensing revenues, and increased its balance sheet cash and investments to $70 million. As we grow our business of partnering with patent owners, we are now seeing new opportunities to enhance shareholder returns by making capital investments in buying patents. Partnering with institutional investors in our new Fund will enable Acacia to access additional capital for these investments with no dilution to our shareholders,” commented Paul Ryan, Chairman and CEO of Acacia.
“With the growing trend of large companies seeking to generate financial returns from their patents, the timing is right for Acacia to expand its business platform to be a leader in both the patent partnering model and the patent acquisition model. All of the management fees and performance fees generated by the Fund will be retained by Acacia’s wholly-owned subsidiary for the benefit of our shareholders,” concluded Mr. Ryan.
But what about the shareholders of those companies who will no doubt be targets of Acacia? On thing can be said with certain, based on Acadia’s reputation for aggressive enforcement of its patent portfolio it is a virtual certainty that more patents and more money means more high profile lawsuits against the whose-who of the tech sector.
It is admittedly incredibly difficult to define what a patent troll is, with many technology giants preferring a definition of “non-practicing entity.” This, however, ignores the fact that Universities, federal laboratories, independent inventors and Research & Development companies are all non-practicing entities and virtually no one, other than the technology giants, would consider that group to be patent trolls or a problem of any sort. This methodology of wrapping together so many who are clearly not bad actors with those who may be bad actors has been a strategy doomed to fail and has largely allowed the technology giants to flail without obtaining assistance. Exactly who is doing their lobbying and messaging? Talk about throwing money down a rat hole!
To the extent that there is an accepted definition for patent trolls it is largely an “I know it when I see it” classification of companies that exhibit certain telltale characteristics. Perhaps the most meaningful distinction between those non-practicing entities that are not widely regarded as bad actors and those that are widely considered patent trolls revolves around innovation. Universities, federal laboratories, independent inventors and Research & Development companies all innovate. The classical patent troll does not innovate, but rather merely acquires patents and then seeks to use them much as an investment vehicle. They collect valuable patents that are fundamentally sound and widely infringed. They then seek to collect licensing royalties and if that fails they ultimately sue. Thus, the classic patent troll does no inventing and merely acquires an asset and then seeks to monetize the asset through any means legally allowed.
Sometimes the less successful and/or more ethically challenged patent trolls do not seek to monetize through what most would consider “legal” means, but rather they are accused of making specious patent infringement allegations. Truthfully, it is hard to separate the fact from the fiction, and the truth (as is often the case) likely lies somewhere in the middle. Nevertheless, it seems completely plausible that there are bad actors who greatly overstate their case and send cookie cutter, non-specific and intellectually dishonest demands to technology giants. This is frequently characterized as extortion, which is probably an apt characterization. The trouble is the technology giants largely have themselves to blame.
Technology companies have for far too long engaged patent trolls in a game of hunter and huntee, where the part of the prey is played by the technology giant who seeks to make and sell inventive products and offer innovative services. Much like the deer in the woods, who are not armed, they are shot by the hunters (i.e., the patent trolls) who are armed. Since patent trolls have nothing to fear in terms of a counterclaim (because they are not making or selling anything) they can fire at will without concern of being fired upon. In short, the strategy that technology companies employ is one that is likely to being shot at ever increasing rates. Add onto that the fact that in many situations the technology companies actually lose and lose big in patent infringement litigation, and add in the factor that they frequently settle, and it is hard to criticize any business person for making the choice to be a patent troll. In fact, being a patent troll seems like an almost guaranteed way to make money these days.
Technology giants complain that they are being held up by patent trolls, but patent trolls frequently win, which means that the technology giants are tortfeasors who actually infringed a right granted to another. No one is Snow White in this story. The tech giants, therefore, must be criticizing patent trolls because they acquire rights from others who did innovate and then enforce them. It is fair to say that the would prefer that those who innovate and cannot enforce themselves should go out of business and their patents put off limits from patent trolls. But what about the infringement they were engaged in? I wonder if ongoing infringement might explain why smaller innovative companies are unable to compete and wind up selling their patent portfolios to patent trolls, or wind up going bankrupt thereby allowing patent trolls to pick up assets at a deep discount? So it is at least a little self serving to complain about those who don’t innovate enforcing rights when those rights were fairly and legally acquired for value from the innovators. So the innovators typically do get paid for the innovation and presumably the value of the patent or portfolio is commensurate with the amount of infringement and underlying value to the asset as a result. Of course, bankruptcy sales are unfortunate and don’t compensate the innovator, but today with all the brokers available and contingency patent litigators, those patents picked up at bankruptcy are likely not all that valuable in and of themselves or they would have been purchased already.
So the dance continues between those technology giants who cannot figure out the obvious strategies for dealing with patent trolls, which I have written about for years, and those who acquire patents and make a bundle suing the hapless deep pocket makers of high-tech gadgets and associated services. In the meantime, perhaps the biggest, baddest and smartest patent troll of the bunch is acquiring new funds to obtain more patents, get more licenses and undoubtedly sue more of those hapless deep pockets who seem more willing to pay and complain than to develop any kind of meaningful strategy.
Eventually the technology giants will come to their senses and figure it out, or hire me and I will figure it out for them. In the meantime there will be tons of money to be made being a patent troll, and in this economy who can blame anyone for pursuing that path if it is there for the taking?