Why build a product when you can just buy the rights? That's the mission of emerging companies such as Acacia Research Corporation (NASDAQ:ACTG).
Here's how it works: Acacia buys patents, possibly even from defunct companies. Then, it contacts companies that use technologies that infringe on the patents and attempts to get a licensing fee. If this doesn't work, Acacia may litigate.
In fact, the company has been successful in obtaining more than 260 licensing deals with companies such as Disney (NYSE:DIS) and World Wrestling Entertainment (NYSE:WWE).
Expect more litigatable patents to hit the market. Actually, this week, the former Internet highflier Commerce One auctioned a portfolio of 39 patents for roughly $15.5 million. Former Microsoft (NASDAQ:MSFT) CTO Nathan Mhyrvold showed up to put in a bid but lost to a secretive company called JGR Acquisition Inc.
With such a price tag, there is no doubt that JGR will be soon sending letters to companies to demand royalties. Companies that rely on Commerce One patents include deep pockets such as Microsoft, Google (NASDAQ:GOOG), Oracle (NASDAQ:ORCL), and IBM (NYSE:IBM).
But such companies have massive legal resources to deal with patent issues. Interestingly enough, big companies -- especially IBM and Microsoft -- are aggressively pursuing licensing opportunities from their own vast patent portfolios. IBM, for example, generates $1 billion per year in patent licensing.
Of course, smaller companies do not have the resources to fight expensive and time-consuming patent lawsuits. Though smaller, they are easier targets.
Over the past few years, small public companies have had to deal with many challenges, such as increased costs of Sarbanes-Oxley compliance and tough equity markets. And, unfortunately for them, patent litigation may be yet another burden to add to the list.
Fool contributor Tom Taulli does not own shares mentioned in this article.
