Acacia: The Company Tech Loves to Hate

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At the same time, nonpracticing entities can help bring transparency to an inefficient market whose price for patents is shrouded in nondisclosure agreements, says James Malackowski, CEO of Ocean Tomo, an intellectual-property consulting firm. "We're transitioning from a period of feudal lords where the only people who cared about intellectual property were large property owners who talked about it among themselves," Malackowski says. "There's been angst over patent trolls but it is not justified by materiality of economics." Patent-infringement cases cost an estimated $1 billion to $2 billion a year, a small fraction of the trillions of dollars companies spend each year on cross-licensing deals, Malackowski estimates.

In 2008, 2,896 patent infringement actions were filed, with median annual damages ranging from $2.2 million to $10.6 million, according to a recent report by PricewaterhouseCoopers. Ocean Tomo estimates that about half in the tech industry are brought by nonpracticing entities. Others put the figure above 70%.

far less expensive to settle

Ryan and the tech companies that he fights in court agree on one thing: Patent litigation is costly, even for the victor. "Litigation by the nonpracticing entities costs the industry billions of dollars per year," says Horacio Gutierrez, Microsoft's deputy general counsel. Ryan calls it "very inefficient," saying it costs each side $10 million to $15 million over years, before a verdict is even reached. More than a decade ago, Cognex spent $5 million successfully defending itself in a patent-infringement case related to bar code technology. Had it opted to settle, the company would have spent just 5% of that total, says Todd Keebaugh, vice-president of legal affairs at Cognex.

In 2004, Acacia entered into an agreement with Bloomberg LP, parent of Bloomberg BusinessWeek, to license digital content-transmission technology.

A growing number of companies are taking a different path, joining so-called defensive patent aggregators such as RPX, which protectively buy up patents and then license them to member companies (see Tech Giants' New Way to Thwart Patent Suits).

Ryan says more companies have become willing to sit down and negotiate directly, before a case lands in court. "With several large companies, we have ongoing business discussions rather than having to litigate," he says, without identifying any. "We keep litigation for the patents that we can't agree on." Asked whether Microsoft would consider talking with Acacia to avoid litigation, Gutierrez says: "Yes. We have a strong history of negotiating and reaching reasonable settlements at fair value."

Some larger companies have even asked Acacia to handle licensing on their behalf—seeking payment for their own patents in much the same way that Acacia represents small inventors and patent holders. "Some of the companies that were calling us bad names five years ago," says Ryan, "are now partnering with us."

King is a writer for Bloomberg BusinessWeek in San Francisco.

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