Acacia Research by the Numbers: Inside the Belly of the Beast
|Written by Gene Quinn
Patent Attorney & Founder of IPWatchdog
Zies, Widerman & Malek
Follow Gene on Twitter @IPWatchdog
Posted: Jan 3, 2012 @ 7:15 am
Just say the name Acacia Research Corporation (NASDAQ:ACTG) to patent attorneys and those in the high-tech community and you are likely to observe an uncomfortable reaction. Acacia has long been considered by many to be the mother of all patent trolls. But are they really a patent troll? The term “patent troll” is one that is nearly impossible to define given the reality that one man’s patent troll is another man’s innovator who just chooses to license. Increasingly, however, the true bad actors in the non-practicing entity community are engaging in what the Federal Circuit has called extortion-like behavior. Is Acacia Research one of those patent trolls that engages in mafioso tactics, or are they a godsend to inventors and small businesses who otherwise couldn’t monetize their patent portfolios?
Hardly a week goes by without Acacia Research issuing at least one press release. These press releases hardly give any useful information and seem more aimed at what I will call “the Borg strategy.” Star Trek fans among us will recall that resistance is futile when dealing with the Borg. Likewise, resistance is probably futile when dealing with Acacia Research. They send this message not so subtly in their near constant press releases, which tout the acquisition of one or another unnamed patent portfolios from an unnamed “major technology company,” or the entering into a license with unspecified terms.
Take a look at the press releases issued by Acacia Research just during the last two weeks of 2011. If you strip away the boilerplate language and obligatorily self-serving quotes from those in the company hierarchy (typically Paul Ryan who is Chairman and CEO), the press releases typically have substance of about one single sentence in length.
December 30, 2011 ~ “Acacia Research Corporation (Nasdaq:ACTG) announced today that a subsidiary has acquired 26 optical networking patents from a major technology company.”
December 29, 2011 ~ “Acacia Research Corporation (Nasdaq:ACTG) announced today that a subsidiary has acquired circuit and packaging patents from a major technology company.”
December 29, 2011 ~ “Acacia Research Corporation (Nasdaq: ACTG) announced today that its Chalumeau Power Systems LLC subsidiary has entered into a license agreement with Enterasys Networks, Inc., covering patents generally relating to Power Over Ethernet technology. The agreement resolves litigation that was pending in the United States District Court for the District of Delaware with respect to certain Enterasys products.”
December 22, 2011 ~ “Acacia Research Corporation (Nasdaq: ACTG) announced today that its MEMTech LLC subsidiary has entered into a settlement agreement with Denso Corporation and Denso International America, Inc. covering patents relating to certain MEMS devices.”
December 21, 2011 ~ “Acacia Research Corporation (Nasdaq:ACTG) announced today that a subsidiary has acquired a patent relating to online gaming technology.”
December 20, 2011 ~ “Acacia Research Corporation (Nasdaq:ACTG) announced that a subsidiary has acquired semiconductor packaging patents from a major technology company.”
December 19, 2011 ~ “Acacia Research Corporation (Nasdaq:ACTG) announced that a subsidiary has acquired patents relating to infusion pump technology from a major medical device company.”
Who issues seven press releases in the last two weeks of the year? They were busy the week before Christmas, and they were busy the week between Christmas and New Year. They acquire patent portfolios like… like they are the Borg. They turn these patents into licensing revenue either through acquiescence or through settlement of patent litigation. Resistance does seem futile.
Acacia operates by and through its subsidiaries acquiring, developing, licensing and otherwise enforcing patented technologies. According to the company 10-Q filing on October 28, 2011, Acacia subsidiaries “assist patent owners with the prosecution and development of their patent portfolios, the protection of their patented technologies from unauthorized use, the generation of revenue from users of their patented technologies and, if necessary, the enforcement against unauthorized users of their patented technologies.” Acacia’s 10-Q reports that when you take into consideration all of its subsidiaries the company owns or controls the rights to over 192 patent portfolios, which includes both U.S. patents and foreign patents that cover technologies used in a wide variety of industries.
Combining the press releases available on the Acacia website with the newer press releases available on Businesswire.com and not yet on the Acacia website, it seems that since the end of October 2011 Acacia has added 9 additional patent portfolios, which increases the number of portfolios they own by 4.7% in just over two months; now owning or controlling 201 patent portfolios.
The revenues brought in by Acacia during the first nine months of 2011 total $151,461,000, compared to $118,727,000 for the same period during 2010. Inventor royalties were $37,269,000 for the first nine months of 2011, compared with $21,296,000 fur the same period during 2010. Contingency legal fees were also higher for the first nine months of 2011, totaling $34,734,000 compared with $17,611,000 during the same period in 2010. Perhaps most significantly, however, is the total amount that Acacia Research pays in operating costs, which was $116,255,000 for the first nine months of 2011 and $75,495,000 for the first nine months of 2010. See Acacia 10-K Income Statement. Two licensees individually accounted for 59% and 26% of revenues recognized during the three months ended September 30, 2011, and three licensees individually accounted for 30%, 20% and 16% of revenues recognized during the nine months ended September 30, 2011.
Does this look like the picture of an industry bad actor? The bad actors in the industry are those that buy up patents, but they do far more than that. The bad actors threaten or bring lawsuits indiscriminately and without regard to whether the defendant is actually infringing, frequently asking for only a few thousand dollars in a license in order to let the defendant out of the case. When defending even a simple patent infringement case can cost well into the millions of dollars in attorneys fees, when offered shakedown pricing that is literally pennies on the dollar truly small businesses who don’t infringe cave.
I have never heard that Acacia Research engages in the extortion-like tactics that seem unfortunately rampant within the industry. Moreover, one license accounted for 59% of revenue during the third quarter of 2011, and another license accounted for 26% of revenues during the third quarter of 2011. That means that one license generated revenue of nearly $30,000,000 and another generated revenue of nearly $13,000,000. Those amounts are hardly nuisance value, suggesting that Acacia is affirmatively not operating in a manner consistent with the truly vile and unscrupulous actors. It is those vile and unscrupulous actors that rightfully wear the mantle of “patent troll,” not Acacia Research.
Whether Acacia Research will continue to be a trend-setter moving forward through 2012 remains to be scene. They certainly have increased revenues rather dramatically over the last 6 years, and in March 2011, Acacia completed a public offering of 5,750,000 shares of common stock. The public offering price was $31.50 per share, and the net proceeds to the Company totaled approximately $175,232,000, not too shabby.
What does seem clear, however, is that Acacia’s business model is quite different than the ordinary run of the mill “patent troll.” Indeed, it seems that the Acacia model is the great equalizer for inventors and small businesses struggling to get paid for their innovations. While testimonials may be questioned sometimes, they have a long list of testimonials from real, identifiable individuals. Perhaps it is time to start to carefully discriminate between the truly bad actors and those that enable inventors and small businesses to reap the rewards that the patent system is supposed to offer.
About the Author
Gene Quinn is a US Patent Attorney, law professor and the founder of IPWatchdog.com. He is also a principal lecturer in the top patent bar review course in the nation, which helps aspiring patent attorneys and patent agents prepare themselves to pass the patent bar exam. Gene started the widely popular intellectual property website IPWatchdog.com in 1999, and since that time the site has had many millions of unique visitors. Gene has been quoted in the Wall Street Journal, the New York Times, the LA Times, USA Today, CNN Money, NPR and various other newspapers and magazines worldwide. He represents individuals, small businesses and start-up corporations. As an electrical engineer with a computer engineering focus his specialty is electronic and computer devices, Internet applications, software and business methods.