Newport Beach-based Acacia Research Corp. may be controversial, but it’s been attracting fans on Wall Street.
The company,a group of lawyers and engineers who buy patents and then demand licensing fees from potential users,is nearing profitability after years of losses.
The company finally is seeing revenue kick in from licensing fees on patents it’s bought over the years.
It’s also gotten a boost from its $27 million buy of onetime competitor Northbrook, Ill.-based Global Patent Holdings LLC early last year. Global Patent held scads of patents.
Acacia acquires patents and splits the revenue from licensing fees with the original inventors, a task that requires a staff of fewer than 30 people. It has posted big losses during the past few years,a period when it’s shelled out for patent portfolios and landed licensing fee agreements.
Its patents include the “V-chip,” which allows adults to filter out TV programs it doesn’t want their kids to see.
Acacia earned its name on streaming media technology, which led it to take on the online porn industry to positive results.
The company has drawn the ire of large technology companies, among others, which have been targeted by Acacia. The company says it is representing the interests of patent holders.
“We are really the expert outsource partner for licensing and enforcing their patent technologies,” said Acacia Chief Executive Paul Ryan.
The company’s revenue depends on how good it is at getting companies to agree to licensing fees or winning cases in court, if necessary.
Acacia’s been scoring on these fronts.
Revenue in the fourth quarter was $8.2 million, versus $779,000 a year earlier.
Acacia’s shares are up more than 20% in the past month and 50% in the past six months. Its market value is about $270 million.
Acacia and the issue of patent enforcement have been getting more attention,both good and bad.
Canada’s Research in Motion Ltd., which sells the Blackberry device, paid more than $600 million to settle a patent dispute earlier this year.
And late last month, the U.S. Supreme Court looked at a patent dispute involving San Jose-based online auctioneer eBay Inc. and a smaller company.
Ryan has been a regular fixture on CNBC during the past month to discuss these hot patent topics.
Despite the positive press play, Acacia finds itself fending off critics, who call Acacia a “patent troll.”
They say Acacia and other patent owners are using them to suck money from big technology companies.
What’s more, Acacia and others don’t make anything, so it’s not as if they’re losing sales because of any infringements, critics said.
Criticism OK
Some technology companies said these “trolls” are abusing the system.
Acacia executives are more than willing to take on the criticism, saying they’re simply giving the small fry the legal backing and financial stamina to outlast a big corporation in a lawsuit battle.
They say inventors of TV, FM radio and other technologies have been shut out of the licensing fees they deserved.
Acacia’s results have improved since it posted a loss of $25 million on less than $1.2 million in revenue in 2003. The company started to turn the corner during the September quarter last year, when revenue more than tripled to $6.8 million and its loss shrunk.
Acacia’s fourth-quarter loss further narrowed to $1.1 million.
The company had $59 million in cash at the end of 2005.
Harris Hall, an analyst with Singular Research Corp. in Los Angeles, expects Acacia to break even in the first quarter and post a net profit of more than $500,000 during the second quarter.
Hall expects Acacia to post $43 million in sales this year.
In a March research note, Hall raised his target stock price on Acacia from $10 to $13.
The company’s shares were trading at $9.85 at recent check.
Acacia acquired 37 patent portfolios last year.
Eleven of them are generating revenue, the company said.
Its Global Patent acquisition contributed 27 portfolios. The company was generating revenue when it joined Acacia.
Acacia puts out press releases almost daily on licensing fee agreements it has landed. Many of the deals are with big companies, such as Japan’s Sony Corp., an Acacia licensee.
On April 3 alone, the company announced deals with Forrest Hills, N.Y.-based JetBlue Airways Corp., Tokyo-based Fujitsu Ltd. and Natick, Mass.-based Boston Scientific Corp.
The pacts cover bar code scanning and Internet advertising technology.
Analyst Hall said big companies are taking note after seeing Research in Motion’s settlement.
“That bodes very well for Acacia,” he said.
But challenges exist. The company’s success depends on negotiations and lawsuits, which can make for some lumpy quarterly results.
Led by general counsel Robert Berman, Acacia has filed suits against Intel Corp. and Texas Instruments Corp., heavyweights that won’t necessarily back down easily.
More Defined
Another potential challenge: Congress is considering a bill that would require the U.S. Patent and Trademark Office to give approval to patents that are more narrowly defined.
Some critics of Acacia and its cousins say they have gotten rich off vague patents that can be broadly interpreted to include too many technologies.
“The problems are with the patents themselves,” said Adam Jaffe, the dean of arts and sciences for Brandeis University in Waltham, Mass. Jaffe is co-author of a book on patents.
Jaffe fingered Research in Motion’s Blackberry patent as an example.
Acacia’s Ryan said the company would thrive despite any congressional move.
“Acacia’s licensing programs are for patented technologies, invented several years ago, so it would have no effect on our business for several years,” Ryan said. “If Congress should enact any new laws that would make it more expensive or difficult to obtain patents, it would drive more inventors and small companies to us for professional and financial support, which would continue to expand our business in the long term.”
