Acacia Research Reports Third Quarter Financial Results

Revenues in the third quarter of 2012 decreased $15,646,000, or 31%, to $34,939,000, as compared to $50,585,000 in the comparable prior year quarter. In the third quarter of 2012, five licensees individually accounted for 30%, 13%, 10%, 10% and 10% of revenues recognized, as compared to two licensees individually accounting for 59% and 26% of revenues recognized during the third quarter of 2011.

Verdict Insurance Proceeds. In the third quarter of 2011, Creative Internet Advertising Corporation (“CIAC”), an operating subsidiary of Acacia, received a $12,451,000 final judgment stemming from its May 2009 trial verdict and damages award in its patent infringement lawsuit with Yahoo! Inc. Yahoo! Inc. appealed the verdict, and in April 2011, a three Judge panel of the United States Court of Appeals for the Federal Circuit reversed the District Court's judgment of infringement in a 2 to 1 decision. As a result of the reversal of the District Court's judgment, in September 2011, CIAC submitted a claim under a specific contingency insurance policy previously purchased, and received $12,451,000 in verdict insurance proceeds.

Cost of Revenues and Other Operating Income (in thousands):

      Three Months Ended September 30,     Change
  2012       2011   $       %  
 
Inventor royalties $ 5,017 $ 15,592 $ (10,575 ) -68 %
Contingent legal fees 8,805 12,328 (3,523 ) -29 %
Verdict insurance proceeds related costs - 7,661 (7,661 ) -100 %
 

Third quarter 2012 total revenues, less inventor royalties expense and contingent legal fees expense was $21,117,000, or 60% of third quarter 2012 revenues, as compared to $27,455,000 or 44% (including verdict insurance proceeds and related costs) in the comparable prior year quarter. The increase in total revenues, less inventor royalties expense and contingent legal fees expense as a percentage of total revenues was due primarily to lower inventor royalty rates for the portfolios generating revenues during the three months ended September 30, 2012, as compared to the portfolios generating revenues in the comparable prior year quarter. In addition, inventor royalties expense for the third quarter of 2012 included a credit of $2,600,000 related to inventor royalties originally expensed in the second quarter of 2012, which based on certain events occurring in the third quarter of 2012, were no longer payable pursuant to the terms of the underlying agreement.

The economic terms of the patent portfolio acquisition agreements and contingent legal fee arrangements, if any, including royalty rates, contingent fee rates and other terms, vary across the patent portfolios owned or controlled by our operating subsidiaries. These expenses fluctuate period to period, based on the amount of revenues recognized each period, the terms and conditions of revenue agreements executed each period and the mix of specific patent portfolios with varying economic terms generating revenues each period.

    Three Months Ended September 30,       Change
  2012     2011   $   %  
 
Litigation and licensing expenses - patents $ 5,686 $ 3,501 $ 2,185 62 %
 

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