Acacia Update: 3rd Quarter Earnings Report Reveals Scope of Acacia’s Ambitions

While the opposition cried victory when U.S. District Judge James Ware—who is presiding over Acacia’s patent infringement case against much of the online adult entertainment industry--recommended they move to summary judgement on sections of Acacia’s DMT patents, nothing about Acacia’s actions in recent months suggests that the company has lost any of its momentum.

In a Q3 2004 conference call in late October, Acacia chairman and CEO Paul Ryan claimed that the 188 licensing agreements that Acacia had entered into represented only 2-3% of the overall market (the number of agreements has since risen to 200). During the call, Ryan cited revenues of $740,000 generated from his company’s DMT patents in just Q3 alone. It doesn’t take a rocket scientist to figure out why they’ve been fighting for these patents so aggressively, and how they can justify investing millions of dollars in legal fees to continue the fight until the bitter end.

If anything, Acacia is looking at additional revenue streams they have hardly begun to tap. "Cable TV companies are continuing the transition to receiving content in digital form... Telephone companies have recently announced plans to deliver video to over 21 million homes via fiber optics, and wireless companies have announced they will be offering full-motion video-on-demand with the new 3G technology," says Ryan. "These markets are creating additional opportunities to derive revenues from our DMT patent portfolio." And Acacia has had some success licensing its DMT patents to cable companies. Already, 25 cable companies have signed DMT license agreements, with a dozen of those signing up over the last two weeks of October and first week of November. On November 8th, Acacia announced that it had reached terms on its 200th license agreement. All told, Acacia entered into 41 new license agreements in Q3.

But Acacia’s business does not solely revolve around licensing their DMT patents. In mid-July of this year, Acacia acquired U.S. Patent No. 6,226,677 from Lodgenet Entertainment Corporation. In early October, Acacia began sending out information packets to hotspot operators claiming that their "Hotspot" patent (aka Internet Access Redirection, or IAR) covers gateway page redirection, which many hotspot operators use to redirect unauthenticated users on the network to a page that contains login information (after logging in, the user is then redirected back again to his or her original page). Acacia’s letters claim that anyone who receives the packet is infringing on Acacia’s patents and must pay $1,000 per year for up to 3,500 redirected connections, with each redirect above and beyond 3,500 costing between five and 15 cents, according to a Wi-Fi Networking News article.

"Ultimately, if people opt not to license the patent, if they can’t show us that they’re not infringing, then that could result in patent infringement litigation," said Acacia general counsel Robert Berman in the Wi-Fi Networking News story. "We have $30 million in the bank, and we have the resources to enforce the patent as necessary." For now, Acacia is willing to waive past infringement if a company signs up for a license, but that won’t always be the case. Following the model set by the DMT patents, Acacia is trying to use the threat of punishment for past violations as well as the lure of reduced licensing rates to convince companies to enter into licensing agreements. "Those who license earlier get the best deals," said Berman.