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IP, IP Asset, Patent

Return Of The Bubble: Patent Sellers Put Acacia Back On Their Christmas Card List

When patent aggregator RPX debuted with more than a billion dollar valuation, they warned us a bubble was coming.

When Rockstar Bidco paid $4.5 B to acquire an aging Nortel portfolio, and Google paid $12 B just to (allegedly) gut a company’s patents, they told us there was no bubble.

Then, on January 13, 2012, in what is probably one of the company’s largest acquisitions to date, Acacia announced a $160 M purchase of Adaptix (along with its portfolio of apparently LTE “essential” patents).  Acacia shares immediately spiked and have been rising ever since.  To put that number in perspective, consider that the $4.5 B paid for the Nortel patents worked out to somewhere between $750,000 and $2.25M per patent, depending on how you count the assets.  In what may be hailed as the triumphant return of the patent bubble, Acacia paid almost double what winning Nortel bidder Rockstar Bidco paid, a whopping $4.8M per patent!

Although Acacia’s press release references “230 issued and pending patents in 13 countries,” narrowing this search down to just identify issued US Patents reveals a much shorter list of a little over 30 US patent assets, along with many more applications.   This puts the Nortel numbers in an apples-to-apples comparison, since the $2.25M per patent figure was generated by only examining Nortel’s US patents that are currently in force as of last year.  Likewise, from Adaptix’s total numbers, once you eliminate the pending applications, foreign patents, and the patents it sold to Netgear back in 2010, Acacia paid slightly less than $5M each for the current, enforceable portfolio owned by Adaptix.

Admittedly, a higher valuation than Nortel’s may be warranted because of the apparent importance and relative young age of the Adaptix portfolio.  In fact, considering just the patents that have 10 or more years of remaining life, Nortel creditors actually received a comparable sum: about $4.5M per patent.  Taking a look back at Adaptix’s patents, the “10 or more years” pretty much describes their entire US portfolio.

Meanwhile, Acacia CEO Paul Ryan has mentioned before an upcoming “paradigm shift” in IP business, moving it from the courtroom to the boardroom.  Granted, Adaptix’s IP business under its new corporate home started in the courtroom.  With its sizable investment, Acacia wasted no time enforcing Adaptix’s patents against the likes of Motorola, HTC, Nokia Siemens Networks and LG, as well as major wireless carriers  AT&T, Sprint and Verizon.

Riding high on Acacia’s recent run of good news, Ryan sold 30,000 Acacia shares, netting $1.1M, in the 2 days prior to Acacia’s announcement of the Adaptix acquisition. This continues a string of stock transactions for Acacia leadership over the past 12 months, so the timing is most likely a coincidence.  During that time, Ryan pocketed about $8.2M, and total Acacia insider deals netted about $24.5M.

Ultimately, to get a return on its money, Acacia will need to be aggressive. Naming AT&T and Verizon in multiple lawsuits in a single day certainly sends the message that you intend to be persistent.  But to get to the kind of numbers Acacia needs to see, they’ll need a second message: that they can win when push comes to shove.  On the plus side, the whole scenario could be good for pricing transparency.  If publicly-traded Acacia can get to a verdict or a settlement big enough to disclose, we might be able to evaluate how well Acacia priced this latest acquisition.

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