NEWPORT BEACH, CA — Let’s play word association; I say “Acacia,” you say… “Respectable?”

No, of course you wouldn’t say “respectable,” because you are part of the internet-based portion of the adult entertainment industry (probably), and the first words that come to your mind when I say Acacia are likely to be something far less laudatory – like “meritless lawsuit,” or “bullshit patent claims.”

Be that as it may, “respectable” is the term of choice in a recent article published by IP Law & Business and Law.com, a piece which chronicles in broad strokes Acacia’s rise from patent troll to a significant player in the patent licensing market.

“Acacia Technologies Group, once derided as a patent troll, grew up and got respectable,” states the sub-headline of the article, penned by Xenia P. Kobylarz.

As near as can be told from the article, the prestige factor for Acacia is less about a change in the company’s conduct than in its contracts.

“As of this writing, the publicly traded company has more than tripled its stock price, to nearly $14, and has quadrupled its revenue, to $35.9 million,” Kobylarz reports. “Where once Acacia puttered along on small, one-time licensing fees from Internet pornography sites, the company now has hundreds of licensees that include Fortune 500 firms such as Advanced Micro Devices Inc., Hewlett-Packard Co., IBM Corp., Intel Corp., Lenovo Group, Ltd. and Nokia Corp.”

What a difference roughly four years makes.

Many in the adult industry remember receiving a slick, glossy media kit asserting that some company called Acacia held within its greater portfolio of patents a suite of patents it had dubbed Digital Media Transmission – or “DMT” – technologies.

The Acacia media kit, in a series of colorful graphs and tables worthy of publication in USA Today, outlined the reasons why Acacia believed that the companies (A) were violating its DMT patents, and (B) should pay a percentage of their annual revenues for a “license” to continue to do things like provide video streaming to the customers of their subscription adult sites.

After initially fighting Acacia, many companies eventually settled, sometimes against the advice of legal counsel. The companies’ decisions were based on a relatively simple business equation:

If Acacia sues and they win, we will have to pay them way more than we do if we just settle now.

Ignoring certain other details one could consider in the above assessment (for instance the argument that Acacia’s DMT claims seemed both too broad and not nearly specific enough to be enforceable), one can understand how a company could come to the conclusion that the path of less resistance was the more attractive option.

Whether or not the revenue gained through licensing to adult internet companies was fundamental to the later success of Acacia is debatable (Acacia has made plenty through licenses unrelated to DMT), but there is no question that adult DMT licensees were perceived as crucial to Acacia, and their success in obtaining agreements from such companies through threat of litigation served as one good “test run” for the Acacia business model.

On the DMT lawsuit front, things have been less rosy for Acacia, as the legal resistance spearheaded by Homegrown Video and Video Secrets, joined by Lightspeed Cash, ARS, Gamelink, Ademia, AEBN, HotMovies, and others has resulted in less-than-favorable rulings for Acacia issued by the court.

In his December 2005 Markman Order, for example, U.S. District Judge James Ware ruled that the term “sequence encoder” was indefinite, and invalidated several claims within one of the key patents in the DMT claim.

The case winds on, of course, and it remains to be seen whether Acacia will completely lose out on the DMT front. It no longer appears that Acacia’s fate hinges on the case, as the company has expanded well beyond the realm of pressuring media companies, adult or otherwise, to license the DMT technology.

This isn’t to say that Acacia’s central method of acquiring licenses, or acquiring patents, for that matter, has changed. The recipe still calls for evaluating patents for potential acquisition, basing the decision of whether to acquire the patent on whether or not there is widespread “infringement” of said patent; if the patent appears to be commonly infringed upon, Acacia acquires the patent, and then issues threats of legal action against alleged infringers, as a means of encouraging the alleged infringer to license the patent in question.

Put in the terms of the Law.com article, “patent portfolios that Acacia considers for acquisition go through a stringent due diligence process. A team of patent attorneys, licensing experts and engineers pores over every patent in a portfolio and does an exhaustive worldwide patent search, performing reverse engineering and calculating royalty rates.”

As the noted in the Law.com article, Acacia is not on the lookout for inspired, groundbreaking technologies. Rather, Acacia’s “patent attorneys make sure that the patents being considered are already being practiced. There must be evidence of substantial infringement going on before Acacia even looks at a portfolio.” (emphasis added)

Acacia also is attempting to reinvent themselves as “defender of the Little Guy,” it seems.

Kobylarz’s article recounts the story of a company called Vertiech, which at one time was an affiliate of a company called TechSearch, which was in turn owned by a company called Global Patent Holdings. In 2005, Acacia acquired Global Patent Holdings for $27 million, picking up the rights to a variety of patents along the way.

One such patent was owned by Veritech, which according to the article was the manufacturer of the “two-dimensional bar code system now used in coding and tracking electronic gadgets and license plates.”

In 2003, TechSearch began initiating patent lawsuits against alleged violators of Veritech’s patents, and was able to generate a bit of revenue, but not enough to keep Veritech afloat; the company filed for bankruptcy in March 2005.

Veritech was still going through its bankruptcy proceedings when Acacia obtained the rights to its bar code patents by way of its purchase of Global Patent Holdings – an acquisition that has proven a life-saver for Veritech.

According to the Law.com article, Veritech has sued three companies since becoming part of Acacia, and has collected over $700,000 in licensing fees. The company’s licensing revenue in 2006, over a quarter-million dollars, represented more than 70% of Veritech’s total revenue that year. Veritech has now “emerged from bankruptcy and is debt-free,” according to the article.

“We could not have done it without Acacia,” Veritec CEO Van Thuy Tran. “We were a small, struggling company, and people were stealing a technology that rightfully belongs to us. We were defenseless until TechSearch and Acacia helped us out.”

Of course, there is always the other side of the story….

It so happens that the validity of several of Acacia’s most profitably patents, including Veritec’s bar code patents, is now under review by the U.S. Patent and Trademark Office.

Additionally, Veritec’s patents are subject to a legal challenge; in March of last year, Cognex Corp, a company that manufactures bar code scanners, filed suit in federal court seeking to invalidate the patents.

Cognex had not been sued directly by Acacia, but Todd Keebaugh, general counsel for Cognex, told IP Law & Business that Cognes was acting in the interest of its customers, many of whom have been sued, or threatened with lawsuits, by Acacia.

Naturally, Tran says Cognex’s case has no merit, and asserts that it represents corporate bullying. Tran maintains that Cognex, a $2 billion dollar company, was using Veritec’s technology by way of one of its subsidiaries, and simply is trying to intimidate Veritec into surrendering its rights to the bar code technology.

In Tran’s view, Acacia is the defender of all that’s good – namely, Veritec’s lifeblood licensing revenue.

“Some people call Acacia a troll, but we see them as a white knight,” said Tran.

A “white knight,” huh?

That probably isn’t the first thing that pops into the minds of most online adult entertainment providers.