Exclusive Interview: Paul Ryan, CEO of Acacia Research

Paul Ryan is a more common name than you might think. In the world of politics when one speaks of “Paul Ryan” they are talking about the Republican Congressman from Wisconsin who was Mitt Romney’s running-mate and would-have-been Vice President. But in the intellectual property world, particularly the patent litigation world, the name “Paul Ryan” refers to the CEO of Acacia Research Corporation. It is the later Paul Ryan that went on the record with me to discuss Acacia, patent enforcement, how large companies who are infringers disregard innovative independent inventors and much more.

This two-part interview took place on December 20, 2012. With the holidays looming and various articles already in the pipeline for the end of the year and start of 2013 publication slid a bit.

Sometimes when I’m doing an interview I have a good feeling about it and know it will turn out very good in print. This was one of those times. I enjoyed my conversation with Ryan and think you will find it quite informative and interesting as well. Without further ado, here is my interview with Paul Ryan.

[Interviews]

QUINN: Let’s just jump right straight into it if we can. How about we start like this – can you give us your elevator speech about what it is that Acacia Research does and how you go about your day-to-day business?

RYAN: Acacia Research partners with patent owners to get them fair compensation for their inventions and splits the net revenue with them typically on a fifty-fifty basis. That’s our business model.

QUINN: I think a lot of people have this idea that Acacia is something that you’re really not. And you guys don’t really go out and just buy patents to then turn around and sue other people, do you?

RYAN: No. People may be slightly confused because one portfolio we did buy, Adaptix because the owner, Baker Capital, did not want to wait for the compensation. They needed a liquidity event. In that case we’ll serve the patent owners needs. We did step up and buy it and we do own 100% of that portfolio. But that’s the rare exception of our 250 portfolios 95% of them are partnering deals fifty-fifty with the patent owner. It’s only when the patent owner doesn’t have the patience or the ability to wait for the eventual payout that we give a liquidity event earlier.

QUINN: So you prefer the partnership model, then?

RYAN: Yes.

QUINN: And do you have a percentage that maybe you could throw out there to try and put some good facts out there? Because based on what I know, overwhelmingly you’re partnering with inventors.

RYAN: 95% plus of the time. And we split the revenue. Our transactions are fifty-fifty. Where they vary slightly is if the inventor or patent owner wants some up front capital, we will sometimes advance capital. But generally we get first dollars back. In other words, if they’re in a position where they need to continue their R&D or for other business purposes they need an infusion of liquidity, we’re willing to do that as long as we get a preferred rate of return on the early licensing fees. Generally we get an incremental percentage above fifty-fifty for doing that. But the big deal is fifty-fifty. If somebody wants money up front we’re certainly willing to do that. We’re extremely well capitalized, we can do it. We generally want a preferred rate of return until we get our money back and then generally a little slightly better split for having provided the cash up front.

QUINN: Right. What you were just talking about is so that folks can continue to do their research and move forward with their businesses as well. And as you know, one of the things that gets thrown out there about Acacia is that you’re not really helping inventors and so forth. And can you address that concern?

RYAN: Yes. The simplest way to address this is anybody can go to our website, look under About Acacia and go to Testimonials and I think you will see 67 testimonials and they’re all very specific. They are all inventors, and there are brief stories of how unsuccessful they were on any efforts of their own to get compensated for their inventions, and as soon as they become partners, Acacia has enabled them to make money. In the vast majority of cases, the original inventor is an individual or a company that we partner with. Now on occasion, certainly as you know, there’s liquidity in patents and oftentimes there are mergers and acquisitions. In the case of the original Palm patents, underlying the original smartphone, the Trio, Palm split into Palm Inc. and Palm Source. Palm Inc. got sold to Hewlett-Packard. Palm Source got sold to a company in Japan and we subsequently partnered with that Japanese company.

The key point is the original Palm owners who paid for that R&D were indeed paid $350 million by Access for those patents. So they were compensated, and now we’re compensating the company that advanced the money to the original people who did the invention.

It’s not unlike the Motorola Google case. I think it’s capitalism at its best. Google was able to go into a smartphone market where they didn’t do the bulk of the 10 or 15 years of R&D and investment by writing a check to the Motorola shareholders who paid for that investment in R&D. You have a transfer of rights and Google then had the ability to more safely enter into a very lucrative new market by paying that entry fee.

So when I read the press reports, that are ill informed, that this money would have been better spent on R&D, they missed the entire point. This is compensation for the money that was invested on the R&D. It isn’t like this was a check that was written into the ether zone. So I find it very disappointing, in the press, when they miss the fundamental point on these transactions. Financially what’s really happening is companies are buying the R&D and invention rights to participate in new markets and this isn’t lost money that otherwise could have gone into R&D, this is compensation for the original R&D itself.

QUINN: The other thing that jumps out to me about that is that it’s naive to assume that just because you’re going to invest a chunk of money into R&D you’re going to wind up having anything to show for it. Research and development goes in a lot of different directions, takes a lot of different twists and turns. And for somebody to say that rather than spending the money to buy a proven commodity or proven line of research they should have just started it off on their own is completely fanciful and doesn’t understand what research is all about.

RYAN: Well, exactly. It also misses the fundamental point of what a tremendous system we have where you actually have patent rights that represent the financial R&D investment and they are transferable to companies who want to then enter certain fields either with a license or an outright ownership that otherwise would have been precluded. It actually encourages competition and better consumer pricing. The system works really well.

QUINN: What I was going to say is it does work really well and from a philosophical point it seems like this is exactly what you want to have in a capitalist property rights based system. Which is somebody owns a right. Somebody else values that right at a greater rate than does the owner so there is a transaction that is had. Now that value at a greater rate can be for a lot of reasons. I know sometimes patents are bought in bankruptcy, like Kodak’s going through that right now. But that’s giving Kodak a second line at a life.

RYAN: Absolutely. What it’s really doing is compensating the Kodak shareholders for that investment and the research and development. They are being repaid for that. They weren’t able to fully exploit it directly in their business, but there are other companies who are better able to utilize that invention and their business models and they’re paying the shareholders who pay the R&D cost for the privilege of doing that. I couldn’t agree more the system works and don’t understand why people are befuddled, including the press and the government. When you really look at it from a straight economic and business standpoint these aren’t problems, there isn’t a crisis. This is the system working with a tremendous level of efficiency.

QUINN: Exactly as it was designed to work, really.

RYAN: Right, precisely. The argument that often times is misplaced is, and again, I think the press has been influenced by media lobbying efforts which have been largely successful, although flawed, is the whole issue of the original inventor and patent owner having to practice the invention in order to quote “have a valid right.” That defies the whole concept of revealing your patented invention, making it public and having a limited period of time to preclude others from practicing it. It’s a convenient argument for people who don’t want to pay for the intellectual property and want to take it and use it. The most disenfranchised groups in any economic system are the people with the least amount of capital. Certainly in large measure those disenfranchised patent owners or inventors are the ones that need the most help and of course large companies who have gotten used to using a lot of that technology without paying would like to make it difficult for those people to be able to get help and partner with someone and get their just compensation.