Acacia Research: Insider Purchasing Signals Short-Term Trading Opportunity – Acacia Research Corporation (NASDAQ:ACTG)

Acacia Research: Insider Purchasing Signals Short-Term Trading Opportunity - Acacia Research Corporation (NASDAQ:ACTG)

I am not a trader. I am a buy-and-monitor investor. But there could be opportunity to reap short-term gains for the trader willing to monitor Acacia Research (ACTG).

Following the history of Acacia Research has been similar to watching the action of a vintage pinball machine.


Acacia Research History

Near the beginning of the decade, Acacia’s primary source of revenue came from defending patent owners against those infringing on their patents. By late 2012, it owned or licensed 250 patent portfolios. Everything seemed to be on the rise – emphasis on seemed. Revenue topped $250 million for the full year in 2012. Headcount also grew, though to only about five dozen employees. Still, the majority of those employees held the title of vice-president and the average salary neared $500 thousand annually. The share price rose past $40 per share in late 2011 through early 2012.

But the patent enforcement landscape was changing.

By design, the United States patent system was built to protect innovators and inventors. With an approved patent, the inventors and innovators, individuals, companies, and universities, have the “right” to protect their products and IP in the courts.

Issues arose when a “little fish” patent owner tried to defend against an unauthorized “big fish” IP user – an infringer. The process to prove infringement was either too complicated or the costs to file suit too exorbitant. These inequities gave rise to a “middleman” industry – non-practicing entities (NPE). Acacia Research operates as an NPE.

An NPE is typically well-versed in patent protection and has the funding to pursue protection. An NPE also facilitates right-to-use licensing between patent owners and patent users. Ideologically, an NPE allows innovators and inventors to continue to innovate and invent without being distracted and burdened by patent protection. An NPE either partners with the original innovator or inventor and defends them or purchases the patent outright.

As this “middleman” industry matured, some NPEs aggressively pursued litigation against any possible infringer. After all, in theory, the more you defend, the more you’ll earn. What those NPEs earned was a derogatory moniker – patent trolls. Patent trolls were accused of creating a huge drain on the industry with unsubstantiated and unnecessary litigation. Similar to “ambulance-chasers”, patent trolls were accused of quickly showing up in “hot” markets looking to reap from the excitement. Ironically, these trolls were accused of turning on the very entities creating their existence – the little fish inventors and innovators.

“Because the cost of litigation is so high, those accused of patent infringement are forced to pay the patent owners not based on the merits of the patent but rather to avoid expensive litigation that would run their companies into the ground. Typically, abusive practice by patent trolls target innovators and small businesses.”

In 2011, Congress passed the AIA, America Invents Act. The legislation was intended to be patent reform. The act contained the most major changes to patent regulations since 1952. The AIA changed patent areas such as a) first inventor to file, b) prior user rights or trade secrets, c) best mode or practice disclosure, d) patent application processing and tracking, and e) opposition and post-grant procedures.

The coalition, American Innovators for Patent Reform, purported the legislation was disguised as reform but was actually detrimental to innovation.

“Not only does the America Invents Act weaken the value of patents, but it also

Makes it harder for individual inventors and small businesses to receive patents for their inventions Makes it more expensive and time-consuming to defend a patent Makes it more expensive to enforce a patent Reduces compensation for patent infringement.”

The coalition proposed the legislation was driven by “Big Tech” lobbyists who would prefer the bigger technology companies not have to license patents for use.

Initially, Acacia Research admitted the AIA had made business more difficult.

“The changes to the legal system haven’t just made it harder to be an NPE, they’ve made it harder for every patent owner to realize monetization.”

But it also suspected the legislation would end up actually endorsing its mission (that suspicion has yet to play out).

In August 2018, when Matthew Vella became CEO of Acacia Research, he intentionally changed the strategy for patent acquisition at the company.

“My goal, as CEO, will be to continue to add, in fact accelerate, the addition of high quality, high revenue potential portfolios.”

Eight months later, he reaffirmed the strategy.

“In 2013, we learned two pivotal lessons that we believe will make Acacia a stronger and more consistently profitable company moving forward. First, Acacia’s strategically chosen to become a company that serves a small number of customers, each having higher quality portfolios. In examining our past success we found…

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