Acacia Research Corporation (Nasdaq: ACTG), which in some circles is known as the mother of all patent trolls, announced today that a wholly-owned subsidiary has become the General Partner of the newly formed Acacia Intellectual Property Fund, L.P. An institutional investment group is the lead limited partner of the Fund, who together with the subsidiary, have provided a total of $27 million as an initial funding commitment.
According to the press release, Acacia Intellectual Property Fund, L.P. will acquire, license and enforce intellectual property consisting primarily of patents, patent rights, and patented technologies. The Fund is authorized to raise up to $250 million, which should strike fear in the hearts of all of the likely targets of patent infringement lawsuits, namely those that make high tech products.
According to a Business Week article from earlier this year, “Acacia has filed at least 337 patent-related lawsuits in its 18 years.” With an infusion of $27 million in initial funding and up to another $223 million on the way, it all but certain that this widely regarded patent troll will be accumulating more patents and going after more high profile targets. It seems reasonable to consider whether this extremely high profile patent troll could with this announcement jump start the seemingly dead patent reform efforts in Congress.
“Acacia has built a leadership position in patent licensing, generated over $350 million in patent licensing revenues, and increased its balance sheet cash and investments to $70 million. As we grow our business of partnering with patent owners, we are now seeing new opportunities to enhance shareholder returns by making capital investments in buying patents. Partnering with institutional investors in our new Fund will enable Acacia to access additional capital for these investments with no dilution to our shareholders,” commented Paul Ryan, Chairman and CEO of Acacia.
“With the growing trend of large companies seeking to generate financial returns from their patents, the timing is right for Acacia to expand its business platform to be a leader in both the patent partnering model and the patent acquisition model. All of the management fees and performance fees generated by the Fund will be retained by Acacia’s wholly-owned subsidiary for the benefit of our shareholders,” concluded Mr. Ryan.
But what about the shareholders of those companies who will no doubt be targets of Acacia? On thing can be said with certain, based on Acadia’s reputation for aggressive enforcement of its patent portfolio it is a virtual certainty that more patents and more money means more high profile lawsuits against the whose-who of the tech sector.
It is admittedly incredibly difficult to define what a patent troll is, with many technology giants preferring a definition of “non-practicing entity.” This, however, ignores the fact that Universities, federal laboratories, independent inventors and Research & Development companies are all non-practicing entities and virtually no one, other than the technology giants, would consider that group to be patent trolls or a problem of any sort. This methodology of wrapping together so many who are clearly not bad actors with those who may be bad actors has been a strategy doomed to fail and has largely allowed the technology giants to flail without obtaining assistance. Exactly who is doing their lobbying and messaging? Talk about throwing money down a rat hole!
To the extent that there is an accepted definition for patent trolls it is largely an “I know it when I see it” classification of companies that exhibit certain telltale characteristics. Perhaps the most meaningful distinction between those non-practicing entities that are not widely regarded as bad actors and those that are widely considered patent trolls revolves around innovation. Universities, federal laboratories, independent inventors and Research & Development companies all innovate. The classical patent troll does not innovate, but rather merely acquires patents and then seeks to use them much as an investment vehicle. They collect valuable patents that are fundamentally sound and widely infringed. They then seek to collect licensing royalties and if that fails they ultimately sue. Thus, the classic patent troll does no inventing and merely acquires an asset and then seeks to monetize the asset through any means legally allowed.
Sometimes the less successful and/or more ethically challenged patent trolls do not seek to monetize through what most would consider “legal” means, but rather they are accused of making specious patent infringement allegations. Truthfully, it is hard to separate the fact from the fiction, and the truth (as is often the case) likely lies somewhere in the middle. Nevertheless, it seems completely plausible that there are bad actors who greatly overstate their case and send cookie cutter, non-specific and intellectually dishonest demands to technology giants. This is frequently characterized as extortion, which is probably an apt characterization. The trouble is the technology giants largely have themselves to blame.
Technology companies have for far too long engaged patent trolls in a game of hunter and huntee, where the part of the prey is played by the technology giant who seeks to make and sell inventive products and offer innovative services. Much like the deer in the woods, who are not armed, they are shot by the hunters (i.e., the patent trolls) who are armed. Since patent trolls have nothing to fear in terms of a counterclaim (because they are not making or selling anything) they can fire at will without concern of being fired upon. In short, the strategy that technology companies employ is one that is likely to being shot at ever increasing rates. Add onto that the fact that in many situations the technology companies actually lose and lose big in patent infringement litigation, and add in the factor that they frequently settle, and it is hard to criticize any business person for making the choice to be a patent troll. In fact, being a patent troll seems like an almost guaranteed way to make money these days.
Technology giants complain that they are being held up by patent trolls, but patent trolls frequently win, which means that the technology giants are tortfeasors who actually infringed a right granted to another. No one is Snow White in this story. The tech giants, therefore, must be criticizing patent trolls because they acquire rights from others who did innovate and then enforce them. It is fair to say that the would prefer that those who innovate and cannot enforce themselves should go out of business and their patents put off limits from patent trolls. But what about the infringement they were engaged in? I wonder if ongoing infringement might explain why smaller innovative companies are unable to compete and wind up selling their patent portfolios to patent trolls, or wind up going bankrupt thereby allowing patent trolls to pick up assets at a deep discount? So it is at least a little self serving to complain about those who don’t innovate enforcing rights when those rights were fairly and legally acquired for value from the innovators. So the innovators typically do get paid for the innovation and presumably the value of the patent or portfolio is commensurate with the amount of infringement and underlying value to the asset as a result. Of course, bankruptcy sales are unfortunate and don’t compensate the innovator, but today with all the brokers available and contingency patent litigators, those patents picked up at bankruptcy are likely not all that valuable in and of themselves or they would have been purchased already.
So the dance continues between those technology giants who cannot figure out the obvious strategies for dealing with patent trolls, which I have written about for years, and those who acquire patents and make a bundle suing the hapless deep pocket makers of high-tech gadgets and associated services. In the meantime, perhaps the biggest, baddest and smartest patent troll of the bunch is acquiring new funds to obtain more patents, get more licenses and undoubtedly sue more of those hapless deep pockets who seem more willing to pay and complain than to develop any kind of meaningful strategy.
Eventually the technology giants will come to their senses and figure it out, or hire me and I will figure it out for them. In the meantime there will be tons of money to be made being a patent troll, and in this economy who can blame anyone for pursuing that path if it is there for the taking?
Join the Discussion
16 comments so far.
Paul F. MorganAugust 11, 2010 10:08 pm
A lot of discussions on topics like NPE injunctions above are wasted by people fanaticizing about what they personally think the law should be [especially, a return to what they think it used to be] rather than what it is now, i.e., reality. Cases like eBay, KSR, MedImune, etc., have been decided unanimously by the most conservative and pro-business Supreme Court since the 1930’s. Do you really think that in your lifetime there will be replaced by at least five Justices all willing to overrule these precedents? Or, that Congress will legislatively overrule them, even though there has not been a shred of proposed draft legislation from either party to do so?
BobbyAugust 11, 2010 06:44 pm
Seeking reasonable royalties is the legal safeguard they have, and court interference is the only way to enforce patents. In the British and American traditions, patents work by taking rights away from the public to protect the inventor to provide an incentive for invention. You sort of sound like you are coming from the French tradition where rights naturally belong to inventors, but that is not the case in the US. The US government is effectively brokering the public’s liberties in exchange for disclosure of inventions, so they should be seeking the best deal that they can for the public’s interests.
Blind DogmaAugust 11, 2010 06:20 pm
Bobby, meet IANAE, IANAE, meet Bobby,
opposites on the intelligence factor but meeting at the same spot.
Market = the real life market – without court interference, but with the legal safeguards as we have them now.
IIANAE – stop trying to squeeze the discussion into an after-judicated remedy-is-what-you-are-left-with-and-not-rights-as-you-have-earned-them scenario. The discussion is on real rights. Rights as they are supposed to be. Please take your disengenuous twisting tactics back to that other blog where they are appreciated. This blog appreciates intellectual honesty.
“1) The public is deprived during the limited time – as you say, that’s a feature, not a bug.
Your statement is false because you wish to speak for the patent holder in an attempt to strip the patent holder of his rights and hand him a weaker remedy. As such a patent holder, I say with as much intellectual honesty as this site aspires to – No Thank You.
Paul F. MorganAugust 11, 2010 05:25 pm
If there really was a way to rapidly and inexpensively deal with true troll suits on patents that are invalid and/or non-infringed in places like E.D. TX, [to provide an alternative to extortion settlements to avoid huge litigation costs for defendants but not plaintiffs], no one I have ever heard of has found it.
Not with the length of time the PTO takes to process reexaminations as compared to the speed at which such litigation becomes both very expensive and burdensome for the defendants. Not with all the judges that refuse to rapidly rule on pre-trial summary judgement motions. Not with anything in the currently pending patent reform legislation. Not with even attorney fee compensation rarely granted to wining defendants.
patent litigationAugust 11, 2010 05:18 pm
As you say, no one has clean hands in this situation. Personally, however, I see nothing wrong with an entity that “acquires patents and then seeks to use them much as an investment vehicle … through any means legally allowed.” I only think real abuse occurs in situations that you have characterized as a form of extortion. As you imply, since NPE or “patent troll” behavior is legal, responsibility lies with the companies who have been targeted — and who are infringing valid patents — to devise some means of addressing this situation that they themselves have helped create and perpetuate … whether by buying into patent aggregation services, offensively monetizing their own IP assets, or other means.
BobbyAugust 11, 2010 04:19 pm
Even if your claim was true about all creators going out of business, that does not make free market arguments apply to markets completely dependent on government intervention (in this case, the patent market). The patent market is not a free market.
Gene QuinnAugust 11, 2010 04:00 pm
Are you really as clueless as your comments make you seem?
If we were in an unregulated free market there would be no innovation because the minute someone invested to create it then the free riders would copy it and then sell for a price that didn’t account for the discovery/creation in the first place. So everyone who invested to create would go out of business.
BobbyAugust 11, 2010 02:00 pm
Free market arguments are only applicable to free markets, and patents are the result of government interference in the market. Relative to what the situation would be in an actual free market, the patent holder getting anything is generous.
IANAEAugust 11, 2010 01:26 pm
The true market is not curtailed by a patent, and in a true market the “infringer” never has to accept any rate at all. The mythical free market is not relevant to the discussion. Patents are a deliberately artificial market force.
When the owner of a right goes to court, it is always up to the court to determine an appropriate amount of damages. The owner of the right is entitled to present evidence of what the amount should be, but that’s it. eBay stands for the not-very-controversial proposition that just because you win in court that doesn’t mean you can name any remedy you want.
1) The public is deprived during the limited time, and 2) by definition, designing around means not using the claimed invention, which means depriving oneself of it.
Why is that statement false? How many patentees have you ever heard of who genuinely want nobody in the country (including themselves) to be able to make any use of their invention at all during the term of their patent? Even your own argument is based on the premise that the patentee only wants an injunction so he can use it to negotiate for a higher royalty.
Blind DogmaAugust 11, 2010 12:55 pm
I am aware of the matter pertaining to the “Incorporation by Reference”, but you are still off as to “and add that a “reasonable royalty” is more or less by definition what the royalty rate would be if it were left to the market“.
The true market is not curtailed by a court edict and in a true market, the buyer never has to accept a rate that he does not want. The power to decide is left with the owner of the right. Period.
Once again your first step is far off the path to truth that you will never find your way.
Your additional comments are as off base as well – the public is never deprived for two reasons – 1) after the limited time,the idea is free and 2) before the end of the limited time is reached, the information is public and design around is enabled.
Finally, you repeat (and thus think it to be true) a false statement of “usually doesn’t really want an injunction.”
As the incorporated by reference material rightly put that argument to shame.
As much as you do not wish to rehash what has been said – don’t – And I won’t have to either.
IANAEAugust 11, 2010 10:57 am
I’m in no mood to rehash the right v. remedy discussion again, so I’ll merely incorporate it by reference, and add that a “reasonable royalty” is more or less by definition what the royalty rate would be if it were left to the market. The court is just as capable of determining what sum of money is reasonable as it would be in any other type of dispute.
More significantly, we should not lose sight of the purpose of the patent system – to promote the useful arts. The exclusive right is not the purpose of the patent system, it is merely the mechanism provided for promoting the useful arts. How does an exclusive right promote the useful arts? Not by depriving the public of useful inventions. By giving the inventor an economic incentive to develop his invention. The inventor may choose whether his economic incentive takes the form of market exclusivity (as pharmaceutical companies do, for example) or the form of licensing revenues. One way or another, he is being paid to make his invention available to the public.
That’s why I have no problem at all with the courts essentially saying (notably in eBay) that if the inventor won’t bring his invention to market he should let someone else bring the invention to market and accept in return the reasonable market royalty that is his due.
After all, the non-practicing patentee who asks the court for an injunction usually doesn’t really want an injunction. What kind of weirdo invents something just to make sure nobody can use it for 20 years? The patentee wants the court to give him more leverage to extract a higher royalty. Well, the court is perfectly capable of quantifying money damages all by itself, and a party who ultimately only wants money for his legal rights should content himself with the amount of money provided by law.
Blind DogmaAugust 11, 2010 10:28 am
Don’t get me started with “it’s OK to force a ‘reasonable royalty’ “. “What’s so wrong?” is that it flies against the very essence of the right to exclude.
To me, such force is way too “Big Brother”. The patent right after all is Exclusionary, isn’t it? The royalty rate should be left to the market. Period. If the holder of the right demands something that no one will pay – then either the market will create (innovate) another way to the end result, or the rights holder will have no buyers for the limited time that Excusiveness adheres (and after that EVERYONE will have free access).
Gene QuinnAugust 10, 2010 09:04 pm
I agree with you 100%. I don’t see any reason to consider a valid business model that is legal as anything other than creative. Sure, we can say that is not what the patent system is about, but doesn’t that miss the fact that the losers in court are tortfeasors? No one is Snow White, and unless and until there is some change then patent trolls are going to make a lot of money exploiting the rules. Carpe diem!
I agree that tinkering with rights is fraught with peril. Luckily we already have that solved given that non-practicing entities could never obtain lost profits and are relegated to a reasonable royalty. What is so wrong about paying a reasonable royalty for using someone else’s property?
Gene QuinnAugust 10, 2010 09:01 pm
From what I hear from those in the relevant industry, there is simply no way that all the patents that could be problematic can be purchased up. Also, by trying to purchase up patents all that is happening is the cost of marginally valuable patents are rising. A patent troll that thinks a patent could be used to go after big companies simply won’t be outbid for such a patent, so these types of entities tend to buy up lower level patents. Nothing wrong with it if there is a strategic purpose, but I don’t think the buying up of massive numbers of patents to ward off patent trolls is a strategy that will work, and I think many in the industry have discovered that already.
Trolls are more than happy to negotiate a settlement usually. The trouble is the numbers are so large and many companies just don’t buy that they are or should be considered to be infringing. Patent trolls are business people, so a deal is a deal is a deal. If the numbers are right they will do a deal.
What larger companies who are targets should do is go after the patent trolls and change the calculus of entering this marketplace. I have written about reexamination, which is one great strategy that is hardly used.
Blind DogmaAugust 10, 2010 08:26 pm
“could with this announcement jump start the seemingly dead patent reform efforts in Congress.”
Since when is (legally) buying and (legally) enforcing patent rights a crime?
Gene, you do yourself a dis-service by sipping my Kool-Aid (I do know it looks yummy, but those of us in the know, should, well, know better).
I’m all for better examination, but tinkering with a patent just because who owns it is fraught with peril.
Lee TaylorAugust 10, 2010 06:28 pm
What are your thoughts on a company like RPX? Isn’t this just an arms race where tech giants should be seeking to outbid trolls for technology they should own or license anyway?
Isn’t there an efficient outcome where, even if the troll threatens suit, substantial common ground exists to negotiate a settlement that works for both parties?