ACACIA RESEARCH CORPORATION The following discussion and analysis of our financial condition and results of
operations should be read together with our unaudited condensed consolidated
financial statements and the related notes included in Part I, Item1 of this
Quarterly Report on Form10-Q for the three and nine months ended
General
We operate our business based on three key principles of People, Process and Performance and have built a management team with identified expertise in Research, Execution and Operation of our targeted acquisitions.
We utilized these skill sets and resources to acquire a portfolio of equity
securities of public and private life science businesses, or the "Life Sciences
Portfolio", in
We also operate our legacy business of investing in intellectual property, or IP, and related absolute return assets and engaging in the licensing and enforcement of patented technologies. We partner with inventors and patent owners, from small entities to large corporations, applying our legal and technology expertise to patent assets to unlock the financial value in their patented inventions. We are an intermediary in the patent marketplace, bridging the gap between invention and application, and facilitating efficiency in connection with the monetization of patent assets.
We generate revenues and related cash flows from the granting of IP rights for
the use of patented technologies that our operating subsidiaries control or own.
We assist patent owners with the prosecution and development of their patent
portfolios, the protection of their patented inventions from unauthorized use,
the generation of licensing revenue from users of their patented technologies
and, where necessary, with the enforcement against unauthorized users of their
patented technologies through the filing of patent infringement litigation.
Currently, on a consolidated basis, our operating subsidiaries own or control
the rights to multiple patent portfolios, which include
We have established a proven track record of licensing and enforcement success
with over 1,600 license agreements executed to date, across nearly 200 patent
portfolio licensing and enforcement programs. To date, we have generated gross
licensing revenue of approximately
31 COVID-19 Pandemic
The full impact of the COVID-19 pandemic continues to evolve as of the date of this report. While the Company does not expect the current situation to present direct risks to its business, and it has not had a material impact to date, the COVID-19 pandemic could adversely impact the Company's operations, as well as the operations of its licensees and other business partners. Our cash is held in major financial institutions primarily in government instruments. Our business is fully able to operate in a socially distanced and/or remote capacity and in accordance with applicable laws, policies and best practices. Our workforce is provided ample paid sick leave, and we have in place robust disaster recovery and business continuity policies that have been revised to account for a long-term remote work contingency such as this. However, the ongoing pandemic may present risks that we do not currently consider material or risks that may evolve quickly that could have a materially adverse effect on our business, results of operations and financial condition.
In response to the COVID-19 pandemic, the Coronavirus Aid, Relief and Economic
Security Act ("CARES Act") was signed into law on
On
On
Executive Summary Overview
Our operating activities during the periods presented were focused on the continued operation of our patent licensing and enforcement business, including the continued pursuit of our ongoing patent licensing and enforcement programs.
- Patent Litigation Trial Dates and Related Trials
As of the date of this report, our operating subsidiaries have nine pending patent infringement cases with scheduled trial dates in the next twelve months. Patent infringement trials are components of our overall patent licensing process and are one of many factors that contribute to possible future revenue generating opportunities for us. Scheduled trial dates, as promulgated by the respective court, merely provide an indication of when, in future periods, the trials may occur according to the court's scheduling calendar at a specific point in time. A court may change previously scheduled trial dates. In fact, courts often reschedule trial dates for various reasons that are unrelated to the underlying patent assets and typically for reasons that are beyond our control. While scheduled trial dates provide an indication of the timing of possible future revenue generating opportunities for us, the trials themselves and the immediately preceding periods represent the possible future revenue generating opportunities. These future opportunities can result in varying outcomes. In fact, it is difficult to predict the outcome of patent enforcement litigation at the trial level and outcomes can be unfavorable. It can be difficult to understand complex patented technologies, and as a result, this may lead to a higher rate of unfavorable litigation outcomes. Moreover, in the event of a favorable outcome, there is, in our experience, a higher rate of successful appeals in patent enforcement litigation than more standard business litigation. Such appeals are expensive and time consuming, resulting in increased costs and a potential for delayed or foregone revenue opportunities in the event of modification or reversal of favorable outcomes. Although we diligently pursue enforcement litigation, we cannot predict with reliability the decisions made by juries and trial courts. Please refer to Part II, Item 1A. "Risk Factors" for additional information regarding trials, patent litigation and related risks.
32 - Litigation and Licensing Expense
We expect patent-related legal expenses to continue to fluctuate from period to period based on the factors summarized herein, in connection with future trial dates, international enforcement, strategic patent portfolio prosecution and our current and future patent portfolio investment, prosecution, licensing and enforcement activities. The pursuit of enforcement actions in connection with our licensing and enforcement programs can involve certain risks and uncertainties, including the following:
· Increases in patent-related legal expenses associated with patent
infringement litigation, including, but not limited to, increases in costs
billed by outside legal counsel for discovery, depositions, economic
analyses, damages assessments, expert witnesses and other consultants,
re-exam and inter partes review costs, case-related audio/video
presentations and other litigation support and administrative costs, could
increase our operating costs and decrease our profit generating
opportunities;
· Our patented technologies and enforcement actions are complex and, as a
result, we may be required to appeal adverse decisions by trial courts in
order to successfully enforce our patents. Moreover, such appeals may not
be successful;
· New legislation, regulations or rules related to enforcement actions,
including any fee or cost shifting provisions, could significantly
increase our operating costs and decrease our profit generating
opportunities. Increased focus on the growing number of patent-related
lawsuits may result in legislative changes which increase our costs and
related risks of asserting patent enforcement actions;
· Courts may rule that our subsidiaries have violated certain statutory,
regulatory, federal, local or governing rules or standards by pursuing
such enforcement actions, which may expose us and our operating
subsidiaries to material liabilities, which could harm our operating
results and our financial position;
· The complexity of negotiations and potential magnitude of exposure for
potential infringers associated with higher quality patent portfolios may
lead to increased intervals of time between the filing of litigation and
potential revenue events (i.e., markman dates, trial dates), which may
lead to increased legal expenses, consistent with the higher revenue
potential of such portfolios; and
· Fluctuations in overall patent portfolio related enforcement activities
which are impacted by the portfolio intake challenges discussed above
could harm our operating results and our financial position.
Investments in Patent Portfolios
With respect to our licensing, enforcement and overall business, neither we nor our operating subsidiaries invent new technologies or products; rather, we depend upon the identification and investment in patents, inventions and companies that own IP through our relationships with inventors, universities, research institutions, technology companies and others. If our operating subsidiaries are unable to maintain those relationships and identify and grow new relationships, then we may not be able to identify new technology-based patent opportunities for sustainable revenue and /or revenue growth.
Our current or future relationships may not provide the volume or quality of technologies necessary to sustain our licensing, enforcement and overall business. In some cases, universities and other technology sources compete against us as they seek to develop and commercialize technologies. Universities may receive financing for basic research in exchange for the exclusive right to commercialize resulting inventions. These and other strategies employed by potential partners may reduce the number of technology sources and potential clients to whom we can market our solutions. If we are unable to maintain current relationships and sources of technology or to secure new relationships and sources of technology, such inability may have a material adverse effect on our revenues, operating results, financial condition and ability to maintain our licensing and enforcement business.
33 Patent Portfolio Intake
One of the significant challenges in our industry continues to be quality patent intake due to the challenges and complexity associated with the current patent environment.
During the nine months ended
Starboard Securities
In 2019, as part of its strategy to grow, the Company began evaluating a wide
range of strategic opportunities that culminated in the strategic investment in
the Company by certain funds and accounts, or the Buyers, affiliated with, or
managed by,
On
On
Pursuant to the terms of the Securities Purchase Agreement with Starboard and
the Buyers, on
34
On
On
On
On
Operating Activities
Our revenues historically have fluctuated quarterly, and can vary significantly, based on a number of factors including the following:
· the dollar amount of agreements executed each period, which can be driven
by the nature and characteristics of the technology or technologies being
licensed and the magnitude of infringement associated with a specific
licensee;
· the specific terms and conditions of agreements executed each period
including the nature and characteristics of rights granted, and the
periods of infringement or term of use contemplated by the respective
payments;
· fluctuations in the total number of agreements executed each period;
35
· the number of, timing, results and uncertainties associated with patent
licensing negotiations, mediations, patent infringement actions, trial
dates and other enforcement proceedings relating to our patent licensing
and enforcement programs;
· the relative maturity of licensing programs during the applicable periods;
· other external factors, including the periodic status or results of
ongoing negotiations, the status or results of ongoing litigations and
appeals, actual or perceived shifts in the regulatory environment, impact
of unrelated patent related judicial proceedings and other macroeconomic
factors;
· the willingness of prospective licensees to settle significant patent
infringement cases and pay reasonable license fees for the use of our
patented technology, as such infringement cases approached a court
determined trial date; and
· fluctuations in overall patent portfolio related enforcement activities
which are impacted by the portfolio intake challenges discussed above.
Our management does not attempt to manage for smooth sequential periodic growth in revenues from period to period, and therefore, periodic results can be uneven. Unlike most operating businesses and industries, licensing revenues not generated in a current period are not necessarily foregone but, depending on whether negotiations, litigation or both continue into subsequent periods, and depending on a number of other factors, such potential revenues may be pushed into subsequent fiscal periods.
Revenues for the nine months ended
• Bone Wedge technology(1)(2) • Wireless Mesh Networking
technology(1)
• Flash Memory technology(1) • MIPI DSI technology(2)
• Internet search, advertising and • Semiconductor and Memory-Related
cloud computing technology (1)(2) technology(2) • Speech codecs used in wireless and • Super Resolutions Microscopy
wireline systems technology(1)(2) technology(2) • Wireless Infrastructure and User • Video Conferencing technology(2)
Equipment technology(1) • Networking and Security technology(1) • Internet radio ad placement(2)
__________________________
(1) Licensing and enforcement program generating revenue in 2021.
(2) Licensing and enforcement program generating revenue in 2020.
© Edgar Online, source
