Recently, one of Acacia Research Corp.’s subsidiaries acquired ADAPTIX, Inc. for $160 million in cash. Acacia, through its subsidiaries, partners with patent owners and inventors to license patents to corporate entities, generating a shared revenue stream. Acacia currently controls over 200 patent portfolios covering technology in numerous industries and is known by some as the “mother of all patent trolls.” The acquisition is significant because it is the first time a non-practicing entity (“NPE” or “patent troll”) has acquired an operating company (although most likely only for its expansive patent portfolio).

ADAPTIX is a pioneer in the development of 4G wireless technology, owning patents relating to 4G technologies filed as far back as 2000. The company has an expansive 4G patent portfolio consisting of 230 issued and pending patents in 13 countries covering a broad range of 4G technologies, including OFDMA and MIMO. The acquisition of ADAPTIX by Acacia may mark a meaningful shift in the prominence of patent trolls, or at the least, possibly a new trend. Depending upon how profitable the venture is for Acacia, the move may spur a trend among patent trolls to consider acquiring entire operating entities instead of, or in addition to, specific technology.

Up until the ADAPTIX deal, Acacia and other NPEs strategically acquired patents or patent portfolios, but not entire operating companies. A Virginia-based brokerage firm, Davenport & Co., forecasts that Acacia will generate at least $300 million in licensing revenue from the deal. Two early agreements have already been signed between Acacia and technology giants Microsoft and Samsung, which are speculated to have generated in excess of $75 million. Most of this revenue goes straight to the bottom line since Acacia does not have to distribute any to a patent-owner and signed the deals without having to litigate. These sort of results imply that Acacia is likely to enter more deals of this nature in the future, due to both the increased margins and its greater access to capital.

Given the rapid recoupment of Acacia’s investment, it is worth wondering why ADAPTIX did not elect to enforce the patents themselves. However, this is where NPEs are demonstrating the added value they bring to the table for patent owners. Having significant experience in licensing patented technologies, NPEs such as Acacia have an understanding of not only how to most effectively monetize intellectual property, including realistic value expectations, but also the resources to do so.

To me, it seems there is actually nothing new about the ADAPTIX deal as it is wholly consistent with Acacia’s past business practices, just on a grander scale. However, there is cause for concern among operating companies finding themselves the target of a patent infringement lawsuit or licensing program as NPEs, such as Acacia, continue to grow and amass the necessary liquidity to acquire and enforce new technology.

– Thomas Booms

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One Response to Out From Under the Bridge

  1. Francie Kammeraad says:

    This is very interesting. I’m still am not sure I understand why patent trolls would purchase entire companies, rather than just the patent portfolios. For example, apart from enforcing its patents through lawsuits, what will Acacia do with Adaptix? I was under the impression that Adaptix researches and develops technology. Will Acacia partner with Adaptix inventors and continue creating new 4G technology, or will they just control and enforce the patents? It’ll be interesting to see how Adaptix transforms after this acquisition.