Joff Wild

If you bought stock in the very litigious non-practising entity Acacia Technologies in November 2008, you have had a very lucrative 15 months. Back then, the company's market capitalisation stood at $90 million, after steep falls at the back end of 2007. By October 2009 it had climbed to $250 million. As of today, the figure stands at over $280 million. That's a 200% plus increase. 

Yesterday Acacia announced its fourth quarter and year end financials for 2009. Annual revenues were up 40% to over $67 million and, according to chairman and CEO Paul Ryan, there is every prospect of further increases during 2010. "Acacia's success in completing over 740 licensing agreements, covering 60 different technologies, is generating interest from technology companies, universities and research centers wanting to partner with us and have us take over the licensing of their patented technologies" says Ryan. Interestingly, Acacia is also starting to work with larger businesses. "We have also begun to expand our patent licensing business by partnering with large companies and have entered into 6 recent agreements covering patents issued to major technology companies," he states. 

In the transcript of a call to discuss the figures published by Seeking Alpha, Ryan expands on this develolpment slightly - though he mentions no names. "There's definitely an increasing appetite for large technology companies to generate a return off their R&D. And I think they've seen companies like IBM and Qualcomm generate huge returns, and I think now there is growing number of technology companies who want to achieve the same kind of returns for their shareholders. And fortunately, with our track record, we're ideal outsource patent licensing company for them to go to." I wonder if any of these six are members of the Coalition for Patent Fairness!

Another development that seems to be working in Acacia's favour is the rise of what are described in the transcript as "buying clubs", which I take to mean defensive partent aggregators among others. "As the asset class continues to emerge, there is more business models building around it, and certainly ... we have done transactions with various buying clubs and we will continue to do so if it economically makes sense for us and our IT partners," Ryan explained in the call yesterday. In fact, it looks like he can see that side of the business getting bigger. "We think it's a very helpful trend and I think there may be opportunities ... where you could get multiple deals done with multiple companies simultaneously and particularly maybe even earlier stage portfolios, obviously as a public company, we're quite visible the buying clubs and other entities are now monitoring our press releases relative to portfolios we're bringing and quite frankly we are getting overtures on those at much earlier stages now where companies individually and buying clubs are coming to us earlier wanting to begin to negotiate prior to litigation ..." 

 In 2008 and 2009 contingent legal fees were $12,429,000 and $15,945,000 respectively. As I understand it, these are the fees paid out to law firms who represent Acacia in return for a slice of any returns made from the licensing deals they have worked on. In addition, Acacia also paid $14,055,000 to firms hired to work on an hourly basis - for prosecution or enforcement - as well as for "out-of-pocket expenses incurred by law firms engaged on a contingent fee basis". In the conference call yesterday, Ryan says that he expects non-contingency legal fees to fall by $4 million or so during 2010, but even so it looks like law firms are, unsurprsingly, Acacia's biggest cost. That said, the company also handed over $15,673,000 in inventor royalties during 2009. 

Of course, it is worth remembering in all of this that Acacia also reported that it made a loss in 2009, just as it did in 2008. Share prices are all about future performance, but at some stage investors have to ask themselves whether the company is going to move into the black. If they decide that it won't or that it is not going to perform as they were hoping, things could head south very quickly; it's not as if if it hasn't happened before.

Just in case you were wondering: I don't own any Acacia stock; neither am I a financial expert; and I am definitely not offering any kind of advice - I am just observing and expressing a few thoughts.