Acacia's 3Q Results

Gretchen Gallen
NEWPORT BEACH, Calif.-- Acacia Research Group, parent of Acacia Technology Group and CombiMatrix Group, announced its third quarter results today at the close of trading on the NASDAQ national market.

The company reported annual revenue of between $1.1 million and $1.5 million from licensing agreements executed to date, said Chairman and CEO Paul Ryan, who led the financial disclosure conference.

Acacia President Robert "Chip" Harris and Amit Kumar, CEO of CombiMatrix Corporation, were also present at the meeting.

For the three months of the quarter ending on Sept. 30, Ryan said that from Acacia's 16 newly acquired licensing agreements, the company recognized revenue of $186,000, although a significant portion of Acacia's revenue will not reflect until the fourth quarter of this year.

Acacia's licensing program made significant progress over this past year," Ryan said. "The third quarter was the beginning of significant revenue flow and we reported only on revenue that was recognized. We will not recognize collected revenue until the fourth quarter."

Acacia is generally known throughout the adult entertainment industry as the licensor of its DMT technology patents – five in the U.S. and 17 internationally -- that cover the transmission and receipt of digital audio and digital video content, more commonly known as audio-on-demand, video-on-demand, and audio/video streaming.

According to Ryan, Acacia expects to see "rapid growth" over the next few years as a result of incoming license revenue.

"We anticipate the momentum we are gaining will continue over the next few years," said Ryan. "We are looking forward to a huge increase in revenue."

Acacia President Robert Harris counts the adult online sector as a major source of revenue generation. Of the 39 companies originally involved in litigation with Acacia, only 13 remain, said Harris.

"It is a very fragmented industry, but revenue could be very significant for us," said Harris.

As of today, Acacia counts 54 licensees of its DMT technology across a broad selection of industry sectors that include adult entertainment, online learning companies, news, sports, and entertainment companies, Fortune 500 companies utilizing video-on-demand for their corporate websites, and cable companies that are using Acacia's DMT patents for digital ad insertion initiatives, pay-per-view, and non-live programming.

"This wide range of media companies is a demonstration of the breadth of coverage for our digital technology across many industry segments," said Harris.

According to Ryan, Acacia will next target the European and Asian market for DMT patent licenses.

"There are equivalent opportunities in those markets that are using our technology," said Ryan. "We wanted to gain momentum in the U.S. before rolling out plans in other regions."

Since July of this year, Acacia has been on the patent infringement war-path in an effort to resolve pending litigation against dozens of adult industry companies.

At one point, just to demonstrate its patent muscle, Acacia shut down 42 websites over a two-day period owned by adult site operator Go Entertainment, Inc. for violating a court order. By the end of the two days, Go Entertainment was forced into a license agreement with Acacia.

Earlier this month, Acacia added Larry Flynt's Hustler websites to its growing list of licensees, as well as Vivid Entertainment, and SBO Pictures, also known as Wicked Pictures.

Prior to that, Acacia secured licenses with Trade News Corp, owner of CECash and Cybererotics; Matrix Content; Interactive Gallery, a wholly owned subsidiary of New Frontier Media Corp.; and Cyber Entertainment, a subsidiary of Dellwood Holdings, which operates more than 100 adult websites.

However, the patent holder is taking off the kid gloves starting Nov. 30 and stiffening the penalties and fees associated with alleged patent infringement.

According to Robert Berman, senior vice president of business development for Acacia, since firing the initial warning shots at the adult entertainment industry in July 2003 for patent infringement, Acacia has been offering special deals to all adult sites that step forward and license the technology they were formally using for free.

Those introductory deals have included certain waivers for past patent infringement and discounted royalty rates based on gross revenues, Berman told XBiz. If a signed agreement is not received, royalty rates and waivers will not be as affordable as before, Berman added.

In a broadening of its pursuit of DMT patent infringers, Acacia recently launched a flurry of letters to colleges and universities across the country that use DMT technology for e-learning programs.

Acacia's pursuit of higher education institutions could, in many cases, make online learning unaffordable for most colleges and universities that were barely showing a profit to begin with, sources say.

Similar to its approach with the adult entertainment industry, Acacia has offered to overlook past infringement if colleges and universities sign up for a special royalty rate of two percent of the gross revenue from each online course that transmits digital audio and video content as part its online curriculum.

According to Berman, the letters went to an estimated 100 colleges across the country, among them DeVry University, Capella University, John Wood Community College, Eastern Michigan University, and Seton Hall University.

Administrators at some of the colleges contacted via letter said they were studying Acacia's demands, but none have so far agreed to licensing deals, and many have openly admitted they cannot afford Acacia's demands.

Acacia also owns a technology known as the V-chip. The V-chip was adopted by manufacturers of televisions sold in the United States to provide blocking of certain programming based upon its content rating code.