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Item 1. Business

2021-03-29 compared with 2020-03-16 · 107 added, 226 removed, 11 unchanged (97% of the section changed)

We invest in intellectual property, or IP,

and related absolute return assets and engage in the licensing and enforcement of patented technologies.

We partner with inventors

and patent owners, from small entities to large corporations, applying our legal and technology expertise to patent assets to unlock

the financial value in their patented inventions.

We are an intermediary in the patent marketplace, bridging the gap between invention

and application, and facilitating efficiency in connection with the monetization of patent assets.

We generate revenues and related cash flows

from the granting of IP rights for the use of patented technologies that our operating subsidiaries control or own.

We assist patent

owners with the prosecution and development of their patent portfolios, the protection of their patented inventions from unauthorized

use, the generation of licensing revenue from users of their patented technologies and, where necessary, with the enforcement against

unauthorized users of their patented technologies through the filing of patent infringement litigation.

Currently, on a consolidated

basis, our operating subsidiaries own or control the rights to multiple patent portfolios, which include U.S.

patents and certain

foreign counterparts, covering technologies used in a variety of industries.

We have established a proven track record

of licensing and enforcement success with over 1,570 license agreements executed to date, across nearly 200 patent portfolio licensing

and enforcement programs.

To date, we have generated gross licensing revenue of approximately $1.6 billion, and have returned more

than $776 million to our patent partners.

Acacia Research

Corporation (the “Company”, “we”, or “us”) acquires businesses and operating assets that we

believe to be undervalued and where we believe we can leverage our resources and skill sets to realize and unlock value.

our (i) access to flexible capital that can be deployed unconditionally, (ii) expertise in corporate governance and operational

restructuring, (iii) willingness to invest in out of favor industries and businesses that suffer from a complexity discount and

untangle complex, multi-factor situations, and (iv) expertise and relationships in certain sectors, to

complete strategic acquisitions of businesses, divisions, and/or assets with a focus on mature technology, healthcare, industrial

and certain financial segments.

We seek to identify opportunities where we believe we are advantaged buyers, where we can avoid

structured sale processes and create the opportunity to purchase businesses, divisions and/or assets of companies at an attractive

price due to our unique capabilities, relationships, or expertise, or where we believe the target would be worth more to us than to

other buyers.

We operate our

business based on three key principles of People, Process and Performance and have built a management team with identified expertise

in Research, Execution and Operation of our targeted acquisitions.

We utilized these

skill sets and resources to acquire a portfolio of equity securities of life science businesses (the “Portfolio Companies”)

in June 2020.

As of December 31, 2020, we have monetized a portion of the portfolio while retaining an interest in a number of operating

businesses, including a controlling interest in one of the companies in the portfolio.

Further, some of the businesses in which we continue

to hold an interest generate revenues through the receipt of royalties.

We also operate

our legacy business of investing in intellectual property, or IP, and related absolute return assets and engaging in the licensing

and enforcement of patented technologies.

We partner with inventors and patent owners, from small entities to large corporations,

applying our legal and technology expertise to patent assets to unlock the financial value in their patented inventions.

an intermediary in the patent marketplace, bridging the gap between invention and application, and facilitating efficiency in

connection with the monetization of patent assets.

revenues and related cash flows from the granting of IP rights for the use of patented technologies that our operating subsidiaries

control or own.

We assist patent owners with the prosecution and development of their patent portfolios, the protection of their

patented inventions from unauthorized use, the generation of licensing revenue from users of their patented technologies and,

where necessary, with the enforcement against unauthorized users of their patented technologies through the filing of patent infringement

Currently, on a consolidated basis, our operating subsidiaries own or control the rights to multiple patent portfolios,

which include U.S.

patents and certain foreign counterparts, covering technologies used in a variety of industries.

We have established

a proven track record of licensing and enforcement success with over 1,590 license agreements executed to date, across nearly

200 patent portfolio licensing and enforcement programs.

To date, we have generated gross licensing revenue of over $1.6 billion,

and have returned more than $797 million to our patent partners.

further details of the development of our business, refer to our Annual Report on Form 10-K for the year ended December 31, 2019,

which is incorporated herein by reference.

Corporate Information

2 unchanged sentences

Our website address is www.acaciaresearch.com .

Reference in this annual report to this website address does not constitute incorporation by reference of the information

contained on or accessed through our website and references to our website address in this annual report are inactive textual

references only.

We make our filings with the Securities and Exchange Commission, or the SEC, including our annual reports on

Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, other reports filed or furnished pursuant to Section

13(a) or 15(d) of the Exchange Act, and amendments to the foregoing reports, available free of charge on or through our

website as soon as reasonably practicable after we file these reports with, or furnish such reports to, the SEC.

we post the following information on our website:

our code of conduct for chief executive officer and other senior financial officers;

our code of conduct for employees and directors and our fraud policy;

Reference in this annual report to this website address does not constitute incorporation by reference of the information contained

on or accessed through our website and references to our website address in this annual report are inactive textual references

We make our filings with the Securities and Exchange Commission, or the SEC, including our annual reports on Form 10-K,

quarterly reports on Form 10-Q, current reports on Form 8-K, other reports filed or furnished pursuant to Section 13(a) or 15(d)

of the Exchange Act, and amendments to the foregoing reports, available free of charge on or through our website as soon as reasonably

practicable after we file these reports with, or furnish such reports to, the SEC.

In addition, we post the following information

on our website:

our code of conduct for chief

executive officer and other senior officers;

our code of conduct for employees

and directors and our fraud policy;

our insider trading policy;

charters for our audit committee, nominating and corporate governance committee and compensation committee.

Also, the SEC maintains an Internet website

that contains reports, proxy and information statements, and other information regarding issuers, including us, that file electronically

with the SEC.

charters for our audit committee,

nominating and corporate governance committee and compensation committee.

Also, the SEC

maintains an Internet website that contains reports, proxy and information statements, and other information regarding issuers,

including us, that file electronically with the SEC.

The public can obtain any documents that we file with the SEC at http://www.sec.gov .

Patent Licensing and Enforcement Business

Patents are an important asset class worldwide.

Licensing and enforcing patents requires an experienced, well-capitalized, licensing partner.

We have partnered with patent owners,

including individual inventors, universities, small companies and large multi-national corporations in a variety of technology

These patent owners may possess limited internal resources and/or expertise to effectively address the unauthorized use

of their patented technologies, or may seek to effectively and efficiently monetize their portfolio of patented technologies on

an outsourced basis.

law, a patent owner has the right

to exclude others from making, selling or using their patented invention.

A third-party infringes a patent by making, offering

for sale, selling, or using a patented invention without a license from the patent owner.

In the majority of cases, infringers

are generally unwilling, at least initially, to negotiate or pay reasonable license fees for their unauthorized use of third-party

patents and will typically indiscriminately challenge any allegations of patent infringement.

Inventors and patent holders without

sufficient legal, financial and expert technical resources to bring and continue the pursuit of costly and complex patent infringement

actions are often effectively ignored.

As a result of the common reluctance of

patent infringers to negotiate and ultimately enter into a patent license for the use of patented technologies without at least

the threat of legal action, patent licensing and enforcement often begins with the filing of patent infringement litigation.

in our experience, most patent infringement litigation settles out of court at amounts that are related to the strength of the

patent portfolio and the value of the invention or inventions in the infringer’s products or services.

We execute agreements

that grant rights in our patents to users of our patented technologies.

Our agreements can be negotiated without the filing of

patent litigation, or negotiated within the context of ongoing patent litigation, depending on the specific facts and circumstances.

We are a principal in the licensing and

enforcement effort, with our operating subsidiaries obtaining control of the rights in the patent portfolio, or control of the

patent portfolio outright.

Our relationship with patent owners drives our corporate strategy.

We assume all responsibility for

advancing operational expenses while pursuing a patent licensing and enforcement program, and then, when applicable, share net

licensing revenue with our patent partners as that program matures, on a pre-arranged and negotiated basis.

We may also provide

upfront capital to patent owners as an advance against future licensing revenue.

Patent Licensing Business Model and Strategy - Overview

Patent Licensing and Enforcement

We are a principal in the licensing and enforcement

of patent portfolios, with our operating subsidiaries obtaining the rights in the patent portfolio, or purchasing the patent portfolio

We assume all responsibility for advancing operational expenses while pursuing a patent licensing and enforcement program, and

when applicable, share net licensing revenue with our patent partners as that program matures, on a pre-arranged and negotiated basis.

We may also provide upfront capital to patent owners as an advance against future licensing revenue.

We have the flexibility to structure arrangements

in a number of ways to address the needs and specific sets of circumstances presented by each of our unique patent partners, ranging

from outright purchases to various forms of partnering arrangements.

Generally, we maintain a 100% to 200% preferred

to address the needs and specific sets of circumstances presented by each of our unique patent partners, ranging from outright purchases

to various forms of partnering arrangements.

Generally, we maintain a substantial preferred

rate of return until all deployed capital and advanced operational costs are recovered by us.

After recovery of these costs, the

net profit revenue share with patent partner commences, if applicable.

Key Elements of Business Strategy

Patent licensing and enforcement can be

an effective and efficient way to maximize the profit potential of a patent, or patents, that are being practiced by third-parties

without authorization.

A patent license agreement grants a third-party user of an invention specific patent rights to the patented

invention in exchange for patent license fees.

Our patent licensing business provides patent holders with an opportunity to generate

income from their patented inventions being practiced by third-parties without authorization and from third-parties that desire

to practice their patented inventions with authorization.

Our patent licensing and enforcement business strategy includes three

fundamental elements, as follows:

Patent Discovery - Discover potentially valuable patents or patent portfolios.

Assessment of Economic Value - Work internally and with external experts to evaluate the use of the patented invention(s) in the relevant marketplace and assess a patent or patent portfolio's expected economic value.

Licensing and Enforcement - License those users wanting to utilize the patented invention with authorization.

For unauthorized users of the patented invention, enter into license negotiations and, if necessary, litigation to monetize the patent based on its assessed value.

Patent Discovery.

The patent process

breeds, encourages and sustains innovation and invention by granting a limited monopoly to the inventor in exchange for sharing

the invention with the public.

Certain technologies become core technologies in the way products and services are manufactured,

sold or delivered by companies across a wide array of industries.

Patent discovery involves identifying core, patented technologies

that have been or are anticipated to be widely adopted by third-parties in connection with the manufacture, sale or use of products

and services.

Assessment of Economic Value.

to the patent discovery process, our executives work internally and/or with external industry experts in the specific technology

field, to evaluate the patented invention and its adoption and implementation in the marketplace.

There are a number of factors

to consider when analyzing a patent and determining a patent’s value including, (i) infringement, (ii) validity, (iii) enforceability

and (iv) extent of usage.

To determine infringement, we must first

identify third-parties that are practicing the invention(s) covered by the patent without obtaining permission from the patent

owner to do so.

A key tool in determining whether or not a company is infringing a patent is a claim chart, which demonstrates

how the manufacture, sale, or use of an existing product compares against the claims of the patent.

The three main factors analyzed to determine

validity are:

(1) anticipation, which occurs when the claims of the patent are entirely revealed within a single piece of prior

art, (2) obviousness which considers whether the differences between prior art and the patented invention are so slight that they

would have been obvious at the time of invention to one who is skilled in the subject matter being patented, and (3) the existence

of non-patentable subject matter, which considers whether the subject matter includes naturally occurring things, abstract concepts,

or algorithms that perform an ordinary function.

To determine enforceability, a number of

factors are analyzed, including whether or not there has been patent misuse, or whether or not there are antitrust violations associated

with the patent.

Due to the inherently complex nature of patent law, only a court or specific administrative body, such as the

International Trade Commission, can make a decision whether a patent is infringed, valid and enforceable;

however, we employ our

wealth of expertise to make the best assessment possible given a specific fact pattern and set of circumstances.

We estimate a patent’s economic value

by evaluating the expected value of the license revenue stream based on past, present and future revenue of infringing products

or services, and the risk that a court will disagree with our infringement, validity or enforcement assessments of the patent.

The processes and procedures employed in connection with the evaluation of a specific patent portfolio for future investment, licensing

and enforcement are tailored and unique to each specific situation and can vary widely based on the specific facts and circumstances

of a specific patent portfolio, such as the related technology, related industry and other factors.

Our business development efforts are geared

toward maintaining those relationships and identifying and growing new relationships in order to generate new technology-based

patent opportunities for sustainable revenue and /or revenue growth.

Legislative and legal changes have increased

the complexity of patent enforcement actions.

We believe that this provides Acacia a competitive advantage, as many patent monetization

entities have either given up or failed.

Furthermore, the challenging legislative environment has kept patent asset acquisition

In fiscal year 2018 and 2019, Acacia experienced

a number of changes in the Company's outlook and leadership.

With new management in place during the years, the focus was on capturing

the value of remaining portfolio assets while starting to rebuild the new business pipeline.

In addition, we began to pursue other

business opportunities which complement our legacy licensing and enforcement business and leverage our IP expertise, as described

Licensing and Enforcement .

step in the patent licensing and enforcement process is to seek to monetize the patent portfolio by securing license agreements

based on the patents use in the marketplace and estimated value.

While we prefer to convince unauthorized users of our patented

inventions of the value of the patented invention and secure a license agreement in a non-litigious manner, many infringers refuse

to take such licenses even when confronted with substantial and persuasive evidence of infringement, validity, enforceability and

significant economic value.

As a result, often we must resort to litigation to demonstrate and prove infringement and ultimately

induce infringers to take a license from us.

We often negotiate licenses concurrently with litigation due to the fact that litigation

necessitates and facilitates an information exchange that helps both sides assess the value of a patent and make informed decisions.

Also, litigation eventually leads to a court’s judgment.

When a court agrees with our assessment of a patent, this judgment

stops recalcitrant infringers from utilizing the patented technology indefinitely, without appropriate authorization.

We engage highly competent and experienced

patent lawyers to prosecute our patent portfolio litigation.

It is imperative for us to be persistent and patient throughout the

litigation process as it typically takes 18-36 months from the filing date of a lawsuit to yield a license agreement from a potential

Often, it takes longer to secure a final court judgment.

Patent license negotiations and litigation

initiated by our operating subsidiaries usually lead to serious and thoughtful discussions with the unauthorized users of the patented

The result can be quite favorable with the user being granted rights under the patents for the patented invention

in its products and services in exchange for financial remuneration.

Recent Developments

In 2019, as part of its strategy to grow the Company

began evaluating a wide range of strategic opportunities that culminated in the strategic investment in the Company by

certain funds and accounts affiliated with, or managed by, Starboard Value LP, or Starboard.

On November 18, 2019, the

Company entered into a Securities Purchase Agreement with Starboard, or the Securities Purchase Agreement, pursuant to which

Starboard purchased (i) 350,000 shares of the Company’s newly designated Series A Convertible Preferred Stock, or

Series A Preferred Stock, at an aggregate purchase price of $35,000,000, and warrants to purchase up to 5,000,000 shares of

the Company’s common stock, or Series A Warrants.

The Securities Purchase Agreements also established the terms of

certain senior secured notes and additional warrants, or the Series B Warrants, which may be issued to Starboard in the

Refer to Notes 16, 17 and 19 to our notes to consolidated financial statements for more information

related to the Series A Preferred Stock, Series A Warrants and Series B Warrants.

In connection with Starboard’s

investment, Starboard was granted certain corporate governance rights, including the right to appoint Jonathan Sagal,

Managing Director of Starboard, as a director of the Company and recommend two additional directors for appointment to our

board of directors.

The investment by Starboard is referred to herein as the “Starboard Investment,”

Series A Preferred Stock, Series A Warrants and Series B Warrants are referred to herein as, collectively, the

“Starboard Securities.”

In August 2016, we entered into an investment

agreement with Veritone, Inc., or Veritone, in connection with which we provided a total of $53.3 million in funding to Veritone.

As of December 31, 2019, the Company's investment in Veritone, which includes shares of common stock and warrants to purchase common

stock, totaled $1.5 million.

In June 2017 and February 2018, we made

equity investments totaling $8.25 million in Miso Robotics, Inc., or Miso Robotics.

As of June 30, 2019, we recorded an impairment

of $8.2 million for our investment in Miso Robotics.

In September 2019, we received a cash payment of $2.0 million upon the sale

of our entire investment, and therefore relinquished our ownership interest in Miso Robotics.

After recovery of these costs, the net profit

revenue share with patent partner commences, if applicable.

We engage highly competent and experienced patent

lawyers to prosecute our patent portfolio litigation.

It is imperative for us to be persistent and patient throughout the litigation process

as it typically takes 18-36 months from the filing date of a lawsuit to yield a license agreement from a potential licensee.

takes longer to secure a final court judgment.

Patent license negotiations and litigation initiated

by our operating subsidiaries usually lead to serious and thoughtful discussions with the unauthorized users of the patented inventions.

The result can be quite favorable with the user being granted rights under the patents for the patented invention in its products and

services in exchange for financial remuneration.

In fiscal year 2019 and 2020, the Company experienced

a number of changes in its outlook and leadership.

With new management in place, the focus was on capturing the value of remaining portfolio

assets while building the new business pipeline.

In addition, we began to pursue other business opportunities which complement our legacy

licensing and enforcement business and leverage our IP expertise.

Patented Technologies

Currently, on a consolidated basis, our

operating subsidiaries own or control the rights to patent portfolios covering technologies used in a number of industries, including:

transportation and automotive, telecommunications, semiconductor, consumer electronics, energy efficiency, wireless, video/imaging

and medical devices.

Currently, on a consolidated basis, our operating

subsidiaries own or control the rights to patent portfolios covering technologies used in a number of industries, including:

transportation

and automotive, telecommunications, semiconductor, consumer electronics, energy efficiency, wireless, video/imaging and medical devices.

Refer to Item 7.

“Management’s

Discussion and Analysis of Financial Condition and Results of Operations - Overview”

for a summary of patent portfolios generating

revenues for the applicable periods presented.

We encounter competition in the area of

patent portfolio investment opportunities and enforcement.

Existing non-practicing entities compete in acquiring rights to IP assets,

and more entities may enter or leave the market in future periods.

We also compete with financial firms, corporate

buyers and others acquiring IP and investing in other technology opportunities.

Many of these competitors may have more financial

and human resources than us.

We may find more companies entering the market for similar technology opportunities, which may reduce

our market share in one or more technology industries that we currently or in the future may rely upon to generate future revenue.

Companies or other entities may develop

competing technologies that offer better or less expensive alternatives to our patented technologies or technology partnerships.

Many potential competitors may have significantly greater resources than the resources that we or our operating subsidiaries possess.

Such technological advances or entirely different approaches developed by one or more of our competitors could render certain

of the technologies owned or controlled by us obsolete and/or uneconomical.

As of December 31, 2019, on a consolidated

basis, we had 17 full-time employees.

Neither we, nor any of our subsidiaries, are a party to any collective bargaining agreement.

“Management’s Discussion

and Analysis of Financial Condition and Results of Operations”

for a summary of patent portfolios generating revenues for the applicable

periods presented.

We face intense competition in identifying, evaluating

and executing strategic acquisitions from other entities having a business objective similar to ours, including private equity groups

and operating businesses seeking strategic acquisitions.

We compete with financial firms, corporate buyers and others investing in strategic

opportunities and acquiring IP.

Many of these competitors may have greater financial and human capital resources than we have.

find more companies entering the market for similar technology opportunities, which may reduce our market share in one or more technology

industries that we currently or in the future may rely upon to generate future revenue.

As of December

31, 2020, on a consolidated basis, we had 20 full-time employees.

Neither we, nor any of our subsidiaries, are a party to any

collective bargaining agreement.

We believe we have good relations with our employees.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business