Driven largely by January’s blockbuster purchase of ADAPTIX, and the immediate recognition of an estimated $70 MM in licensing revenue from Microsoft and Samsung, Acacia announced Q1 2012 as its best quarter in history, with a total of $99 MM in revenue, a whopping 62% increase over the same period last year. In total, Acacia earned revenue from 40 new license agreements in the quarter from 32 different technology verticals, an average of almost $2.5 MM per license. Trailing twelve-month revenues totaled more than $220 MM for Acacia since March 31 of last year, on the strength of 130 license agreements, for an average of $1.7 MM per license.
According to Acacia CEO Paul Ryan, a “major trend accelerating our business is the growing complexity and cost that is required for small entities, including individual inventors, … to be able to license patents on their own.” Ryan credited court rulings and “the recently passed patent legislation” as driving “increased partnering opportunities with these small entities who need an expert partner to generate licensing revenues from their patents.” In response to questions, Ryan explained that increased costs and complexity for patent litigation encouraged less risk-tolerant and deep-pocketed patent owners to turn to Acacia for assistance. Acacia, in turn, leverages its relationships with patent litigation firms around the country to file multiple, simultaneous patent cases, since combining defendants into groups is no longer allowed. Interestingly, while spun as a “win” for patent defendants during the patent reform debates, Ryan considers the new rules a procedural advantage, saying that it has become more difficult for defendants to collaborate behind a common law firm to save costs. A full transcript of the earnings call is available at Seeking Alpha.
Acacia declined to specifically reveal how much Microsoft and Samsung paid for their respective licenses. However, a source familiar with the ADAPTIX sale indicated that the portfolio had been marketed as including “built-in” licenses from Microsoft and Samsung as part of the purchase, consistent with Gametime IP’s earlier reports. ADAPTIX represents a notable departure from Acacia’s standard practice, which is acquiring patents from inventors and small entities in exchange for a 50/50 split in licensing proceeds. In addition, Microsoft and Samsung agreed to license the ADAPTIX portfolio prior to litigation, meaning Acacia keeps 100% of the revenue, as opposed to approximately 35-40% the company would normally receive (after paying contingent fee counsel and splitting proceeds 50/50).
Naturally, Acacia remains in the red until it’s licensing revenues pass the $150 MM mark. Executive Vice President of Licensing, Matt Vella, declined to reveal any internal projections for when Acacia might reach that milestone. However, Vella all but promised to ratchet up the pressure on its licensing targets, which currently include wireless carriers AT&T and Verizon, wireless infrastructure manufactures Alcatel-Lucent and Nokia Siemens, and handset companies Motorola, Apple, LG and HTC. Vella mentioned, without specifying, “natural points” during a lawsuit that force parties to evaluate their desire to license the patents in lieu of further litigation and affirmed Acacia’s commitment to “expand the number and quality of those points.” Foreign (likely European) litigation and ITC are both likely venues, as Vella further hinted “it won’t just be through U.S. litigation.”
Another promising data point for Acacia, and patent owners everywhere, is trend on the percentage of what they call “non-litigated licenses,” situations where the parties negotiate and complete licenses before litigation is filed. Historically, claimed Ryan, Acacia earned about 20% of its revenue from non-litigated licenses. Last year, that percentage rose to 25%. For the first quarter of this year, all Ryan and Acacia would report is that “over 50%” of its revenue came from non-litigated licenses. Of course, with Microsoft and Samsung, two very high-profile non-litigated license agreements, potentially representing 70-75% of first quarter revenue, the real percentage has to be significantly higher than 50%.
On the other hand, that trend is unlikely to continue for the balance of the year. For example, ADAPTIX, easily one of their most valuable portfolios, is already in litigation with numerous targets having significant exposure from 4G essential technologies. That said, the increase from 20 to 25% last year is an encouraging sign that companies are increasingly willing to negotiate in good faith without uniformly forcing patent owners to incur the expense of litigation.
- Microsoft/Samsung License Acacia Patents For Estimated $65 MM (gametimeip.com)
- Return of The Privateer: Did Microsoft & Samsung Finance Acacia’s Recent Patent Splurge? (gametimeip.com)
- Return Of The Bubble: Patent Sellers Put Acacia Back On Their Christmas Card List (gametimeip.com)
- Another Smart Move From Microsoft’s Patent Licensing Group (gametimeip.com)
- Here’s Why This Tech Stock Should Interest You (fool.com)