For Newport Beach’s Acacia Research Corp., a counter response to its business model is the sincerest form of flattery—and a way to make money.
Acacia works with smaller companies to buy their patents and then searches for others it suspects of infringing on them for potential licensing deals or lawsuits.
Now Acacia’s facing a counteroffensive. There’s been buzz lately about a crop of new rivals to Acacia, companies known as “buying clubs,” which are looking to help big technology companies head off time-consuming patent litigation.
Buying clubs, such as San Francisco’s RPX Corp. and Bellevue, Wash.-based Intellectual Ventures Management LLC, charge companies a fee to join and then pool the money for purchasing patents.
In return for the investment, the buying clubs give patent licenses to their “members” in hopes of avoiding lawsuits.
It’s a model that, on the surface, would seem to take aim at Acacia’s way of doing business.
It hasn’t so far, according to Rob Stewart, senior vice president of corporate finance at Acacia.
“Our business has never been busier,” he said. “We are growing at an exponential rate.”
Acacia counts some 140 licensing deals. Five years ago it had three.
In the past year, Acacia has struck deals with or won judgments against some tech kingpins, including Microsoft Corp., Oracle Corp., Yahoo Inc. and Google Inc., among others.
Acacia views the buying clubs as customers.
“It’s a great benefit for us,” Stewart said. “They are in the business of buying patent rights and we are in the business of selling them.”
So far, Acacia has struck two deals with RPX. Others are in the works, according to Stewart.
The company, which sees about $60 million in yearly sales, is hovering around break-even.
For the fourth quarter, Acacia posted a profit of about $409,000, down from a profit of $3 million a year earlier and ahead of analysts’ expected $318,000 in profits.
It saw fourth-quarter sales of $20 million, up 9% and beating analysts’ expected $15 million in sales.
Strategy
Acacia, run by a group of executives, lawyers, engineers and patent researchers, offers its enforcement services to individual patent owners, small companies, medical research groups, hospitals and universities. When it finds a company infringing on a patent, it tries to strike a licensing deal or sues.
Acacia has struck licensing agreements or settled patent infringement suits with a slew of local tech companies, including Fountain Valley’s D-Link Systems Inc., Irvine’s Sage Software Inc. and ViewSonic Corp., just over the county line in Walnut.
Acacia, RPX and others occupy a niche, aggressive corner of patent law that’s been marginalized in the past.
Because Acacia doesn’t make any products and licenses technologies it doesn’t design, it is known in tech and legal circles as a “nonpracticing entity.”
Critics are blunter. They peg the company as a “patent troll”—or someone who uses patent law to shake down unsuspecting companies.
Acacia views itself as a champion of the underdog, helping small companies, especially those without massive legal resources, to get paid for their technologies.
The term patent troll “is kind of disingenuous,” Stewart said. “We are actually generating revenue for the benefit of the person who invented the patent.”
And of course, for Acacia. It splits sales, licensing fees and court settlements with the original developers of the patents it holds.
Maturing Business
Acacia’s growth and the advent of buying clubs have help to formalize, if not legitimize, the company’s business.
“More companies are popping up with similar business models in IP licensing, which shows that this particular asset class is becoming more recognized and mature,” Stewart said.
The maturing industry for making money off patents through litigation is certainly keeping lawyers busy.
Roughly a third of the patent lawsuits filed these days originates from companies such as Acacia, estimates John Sganga, a partner at Knobbe Martens Olson & Bear LLP in Irvine.
“It has certainly changed the landscape in these types of cases,” he said. “There are so many lawsuits being driven by the trolls, especially in consumer electronics. It’s a rare situation when you have true competitors facing off in a patent case anymore.”
Sganga sees demand for Acacia’s services as fallout from the dot-com bust of the early 2000s, in which the only surviving assets of a shuttered Internet company were its patents.
“There were a tremendous amount of patents filed in connection with the Internet boom and a lot of those startups didn’t make it,” Sganga said. “So you have this situation where there are a lot of patents not associated with companies but have competitors in the marketplace. There is a marketplace out there right now for patents independent of the technology that’s associated with them.”
