Acacia's Future

Implications: The Acacia business model is a repulsive one on public policy grounds; and in the coming months patent law is likely to catch up with the firm and further constrain Acacia's growth potential.

Analysis: When asked about the possibility of investing in Acacia, my initial reaction is always the same: I want to respond by asking if the relevant investor would put money behind child pornography, or drug trafficking, or promoting the sale of cigarettes to children.   I overstate here only mildly; but what Acacia does is bad for society, and making money on it is wrong from a public policy and moral perspective.

Acacia's backers do not see it this way.  They spin their business as one that helps small inventor earn their just rewards.  But that is not right; and understanding why is the first step toward understanding how and why patent law will gradually put an end to this sort of enterprise.

Under normal circumstances, a patent holder earns a living first by patenting a genuine invention, and then by telling potential customers about the technology. The patent in this instance protects the inventor from having his idea stolen, but the patent is worth nothing unless and until the associated inventor can find customers for his idea. The system thus encourages both the creation of new ideas and their dissemination.

Patents that are issued wrongly, however, do not follow this pattern. A patent holder whose patent covers a technology that was already obvious to those skilled in the art has a strong incentive to sit quietly after the patent is issued, knowing full well that other parties will stumble onto that same obvious technology in time. When that happens, the patent holder can step forward, threaten litigation, and in the end extract royalties from infringers who neither knew of nor benefited from the patent holder’s work.

Acacia's business model is the latter one.  It finds inventors who (perhaps entirely non-maliciously) have patented inventions that were obvious at the time they were invented and patents that have for related reasons gone entirely unnoticed by the market.  It buys those patents and then looks for firms who, completely unhelped by and unaware of the relevant patent, on their own came up with and implemented the same obvious next step.  Acacia then sues, hoping to win the massive cash awards made available through patent litigation.

Understood this way, the chink in Acacia's armor is exposed.  Recent patent caselaw has already begun to make clear that the patent system is today more skeptical of obvious and otherwise unimpressive patents.  Recent Congressional activity has backed this trend; when legislation finally issues, it will, among other things, likely make it easier for accused infringers to call a weak patent by its proper name.

So yes, in theory, Acacia's business plan scales nicely and has huge profit potential.  But if the stars align as they ought, Acacia's strategy of abusing the patent system is a sinking ship.  The patent system will soon become much more hostile to patents that play no role in moving innovation into society, while leaving fully intact the protections that the patent system was supposed to offer to real innovation.