Good afternoon and welcome, ladies and gentlemen, to the Acacia Research fourth quarter earnings release conference call. (Operator Instructions). I will now turn the conference over to Mr. Paul Ryan. Go ahead, sir.

Thank you for being with us today. Today's call may involve what the SEC considers to be forward-looking statements. Please refer to our 8-K, which was filed with the SEC today for our forward-looking statement disclaimer. With us today is Chip Harris, President of Acacia; Dooyong Lee, Executive Vice President; and Clayton Haynes, our Chief Financial Officer. Today, I will give you an overview of the progress we are making in building the business, and Clayton Haynes will provide you with an analysis of our financial results. We will then open the call for questions. Acacia Research fourth quarter 2008 revenues were $18.3 million compared to $12 million in the year ago period. This was our second highest revenue quarter to-date. During the fourth quarter, Acacia generated revenues from 20 new licensing agreements covering 15 different technologies, including initial revenues from five new licensing agreements. Cash and investments increased during the quarter by $6.1 million to $51.5 million at the end of the year. Acacia's second half 2008 revenues of $32.1 million set a new record for revenues in the six-month period. During the second half, we began generating revenues from 13 new licensing programs, which was also a record for a six-month period, and represents starting a new licensing program on average every two weeks. Full year revenues were $48.2 million in 2008 compared to $52.6 million in 2007. During 2008, Acacia acquired control of 20 new patent portfolios for future licensing and ended the year with over 100 active patent portfolios, up from 88 at the end of the prior year. Acacia started generating revenues from 20 new licensing programs in 2008 and have begun generating revenues from 48 licensing programs by the end of the year, up 71% compared to 20 licensing programs at the end of…

Thank you, Paul, and thank you to everyone joining us for today's earnings call. As indicated in today's earning press release, fourth quarter 2008 license fee revenues totaled $18.3 million as compared to $12 million in the fourth quarter of 2007. Fourth quarter 2008 revenues included license fees from 20 new licensing agreements covering 15 of our technology licensing programs, including initial license fee revenues for our Medical Image Stabilization technology, Storage technology, Ecommerce Pricing technology, Location Based Services technology and File Locking in Shared Storage Networks technology. Fourth quarter 2008 license fee revenues also included: fees from the licensing of our DMT technology, Telematics technology, Portable Storage Devices with Links Technology, Audio Video Enhancement and Synchronization technology, Pop-up Internet Advertising technology, Audio Communications and Fraud Detection technology, Picture Archiving & Communication Systems technology, Remote Management of Imaging Devices technology, Projector technology and High Quality Image Processing technology. To-date, on a consolidated basis, our operating subsidiaries have generated revenues from 48 of our technology licensing programs. License fee revenues continue to fluctuate from period to period, based primarily on fluctuations in: one, the dollar amount of agreements executed each period, which is primarily driven by the nature and characteristics of the technology being licensed and the magnitude of infringement or use associated with a specific license fee; two, the specific terms and conditions of license agreements executed each period and the periods of infringement contemplated by the respective license fee payments; and three, fluctuations in the total number of agreements executed each period, which can be influenced by a number of factors, including the timing and results of patent filings, ongoing negotiations and enforcement proceedings related to our intellectual property rights. Consolidated trailing 12-month revenues, which is one of the measures used by management to assess performance, totaled $48.2 million…

Thanks, Clayton. Operator can you open the call for questions, please?

(Operator Instructions). Our first question comes from Bennett Notman from Davenport. Please go ahead with your question

Good afternoon, guys, and congratulations on a nice quarter.

Thank you, Bennett.

Can you just talk a little bit about the legal expense at $1.7 million that looks a little high. I'm not aware of any particular action that would have been driving that. I am just wondering if that is because there is a bunch of stuff moving through the system or what the primary driver was.

The legal expenses cover patent prosecution; they cover all expert witnesses, arrangements that we have with law firms. So that's a pretty standard number. I don't know what number you had, but that's certainly not out of line with our expectations.

Yes.

I think it was 2.5 in 2007, and primarily the difference was in 2007 there was an incremental amount because we did go to a trial during 2007. So I think probably you can expect that kind of level of total legal expense over the course of the year.

Yes. It's more than 50% up over the last three quarters. So I was just thinking there might have been something driving that. Each of the last three quarters was 1.1-ish, something like that. But okay, fair enough. You talked about how you're getting more interest from companies that have IP and want to partner with you. You added four portfolios in the quarter, but you've had other quarters where you've added more in the past. Is it a longer lean time to get these deals done because of the types of companies you're dealing with now, or should we be expecting an acceleration in the rate of portfolios coming in as a result of what is going on?

Our target is 20 to 25 portfolios a year, and the number we have is a net number. The over 100 portfolios are the active portfolios. There's a handful that we acquired from Global that we have actually concluded the licensing of. No, I don't thing it is taking any longer, and certainly, there are more opportunities. Obviously, tech companies, particularly the ones that we often partner with, that are either private or small public companies, really don't have access to the equity markets or debt markets right now. I think more of them are looking at this as a sale lease pact where they can generate cash for an intangible asset on their balance sheet. We can grant them a license back and split the licensing revenues. So, certainly the economic and financial pressures on many of these smaller tech companies lead them to, I think, more so than in the past then obviously our business development teams who have been in conversations with those people, hopefully, will accrue the benefit of that over the next year or so from some of the dialogues that we have had going for sometime.

All right. And then, you have obviously started out the year with a nice steady flow of new deals that we have not seen this early in a quarter from you guys for several quarters if ever before. Is there something that has changed, that has gotten deals to be happening a little faster or earlier in the quarter or is there any comment you have on that pattern?

As you know, last year in the first half we were getting a lot of these programs up and running and getting ready to go, and that's when the growth curve flattened out for a period of time. I think clearly in the third quarter and end of the fourth quarter and continuing now we are getting a reacceleration of the growth simply based on the number of portfolios that we have in act of licensing right now. So I think it's just simply a matter that we have many more portfolios in act of licensing program now than ever before.

Finally, just one housekeeping item. What is the actual total active portfolio account?

I think it is 102 or 103. We will probably upgrade it at increments of 25 or so maybe when we get to a 125 portfolios. For us, it has not become with the sheer numbers that we have not as meaningful a measure on a portfolio by portfolio basis. Really, the key things are the active portfolios that have started to begun generating money. That's a metric, obviously, that we will continue to focus on. Hopefully, as you can see from the last six months, it has been the fastest. We brought out 13 new programs in the last six months, which is a record amount, and hopefully, with the amount of the new portfolios that are now ready for licensing, that trend will continue.

Great. Thanks again.

Okay. Thank you.

(Operator Instructions). We have our next question coming from [Paul Berger, Hammock Investor]. Please go ahead.

Good afternoon, Paul. I am sorry, I got along a little late, so you may have covered it, but this morning you filed the 10-K with RPX and it sounds like it's wording a little different. Can you give a little color on what portfolio it was and exactly what you are doing?

I can't comment beyond it. We filed an 8-K this morning and we entered into a transaction with RPX, which was a license and purchase option agreement regarding a portfolio that we have. The portfolio, I think that we have generally described it on our website as a security system relating to the Blu-Ray players. It is how we describe it on our website; the little one or two sentence descriptions of the portfolio. So that is the connection between the name of the subsidiary and the technology. But we really can't comment beyond what we did. Obviously, we did a transaction a few weeks ago with RPX on another portfolio. What I can comment on is I think there is no question that it is becoming clearer and clearer what we've indicated to investors over the last year or so that patents are clearly an emerging asset class. I think you are beginning to see the tangible manifestation in the emergence of a variety of these new buying clubs. Intellectual Ventures started about the same time we did, and it has been reported by the Wall Street Journal that they have raised a few billion dollars with strategic partners. There was a great article. Actually, if you want to look back I think in September in the Wall Street Journal, it was predominantly about Intellectual Ventures, but it also discussed the emergence of these new buying groups like Allied Security Trust that has several tech companies. In that article I think they talked about Google and Motorola and Ericsson becoming members of that buying club, and then RPX has made some announcements stating that they have Cisco and IBM as kind of chartered members of their group. So, clearly, there is an emergence and an understanding and a recognition…

Okay.

I think in context I can make that comment, but certainly I can't comment more specifically on that individual transaction.

Okay. But can we assume that any deal that you do with them would be bigger than if you would do it with an individual company because...

No, you can't. Obviously you should not make any assumptions; it's just a transaction and we do not comment on it for confidentiality purposes and sizes of transactions.

Okay. But should we assume that if you are doing a deal with them it should be somewhere around what you would think you should be able to monetize if you were going after the company themselves.

Well, certainly we would not do financial transactions with out disadvantage. Obviously, any transaction that we would do, it would have to be at an equitable basis rather than what we could do through a direct transaction.

Okay, thanks.

Okay, thanks for the questions.

And we have our next phone questions coming in from [Marilyn Peterson a Private Investor]. Please go ahead.

Hi, this is Marilyn. I did have questions in regard to what you just answered. But I also was wondering in the deal with Johnson and Johnson is mentioned a 1993 patent date, and I don't recall in past news releases that you mentioned a date. Is that date significant?

I do not know. I would guess it is probably in the negotiations on the approved press release that either we are licensing people or IT partner, or Johnson and Johnson thought that was a relevant factor. But I really do not know why that would have been in there.

Okay, I didn't know if you were getting fees going back a long time; if that was about an attempt at stating the date.

It is just probably one of the three interested parties; either our licensing group, our IP partner or J&J. The licensee for some reason, thought that was relevant to have it in, but I really don't know why...

Sure. And then I was wondering, also, you had mentioned some employees being terminated. Are these non-essential employees?

Well, none of our employees are non-essential; they wouldn't be here.

Right.

I can't answer your question. Just a normal course of business, we have had a certain amount of attrition and we don't comment on all that occurred, but we have cut back our cost structure slightly. We geared up a year and half ago for success and obviously, we have brought a lot of very talented people out of the industry and some fit the model better than others, so it is nothing more than normal attrition rate on a growing company.

Okay. Thank you so much.

Sure.

We have our next question coming in from Jeremy Hellmen from Singular Research. Please go ahead.

Hey guys, nice quarter. - Singular Research: Hey guys, nice quarter.

Thank you, Jeremy.

A couple of questions. First, what was that cash flow from operations number again? I just couldn't keep up with you there with all the details. - Singular Research: A couple of questions. First, what was that cash flow from operations number again? I just couldn't keep up with you there with all the details.

Just about $2.5 million.

$2.5 million for the quarter, right? - Singular Research: $2.5 million for the quarter, right?

No, for the full year.

For the year. For the full-year, okay. And do you have Q4 number too? - Singular Research: For the year. For the full-year, okay. And do you have Q4 number too?

I think it was close to that for the quarter as well.

Okay. And this is kind of more of a general question and just to (inaudible) it's not rooted in having heard or read anything. But with the change in administration, are you seeing anything or expecting any thing difference in out of the court system in terms of finding these two patent protection or otherwise? - Singular Research: Okay. And this is kind of more of a general question and just to (inaudible) it's not rooted in having heard or read anything. But with the change in administration, are you seeing anything or expecting any thing difference in out of the court system in terms of finding these two patent protection or otherwise?

I don't think there will be any change. Obviously, the sitting judge is having major changes in the court system itself. There obviously will be new patent, head of the patent office named shortly. But again, that usually doesn't impact from a judicial standpoint. On the legislative side, Senator Leahy has announced again and he has lobbied heavily every year. They reintroduced the so-called Patent Reform Legislation. We certainly hope that one of these areas, they will get it completed because we don't think there are any of the provisions that realistically would be approved; would have a significant impact on our business. It may make it a little more complex, but actually that is in our favor. If enforcement of intellectual property becomes more complicated, obviously we as the leading company will probably be the recipient of more people wanting to partner with us. So the only thing I can really say is you probably will see some talk in the spring about the reintroduction of some of the same patent reform proposals that in the past certainly, did not clear the Senate. The one last year got through the Congress, but not through the Senate.

Okay, thanks. - Singular Research: Okay, thanks.

Sure.

(Operator Instructions). And our next question comes from John Henderson from JBH. Please go ahead sir.

Hi, guys, nice quarter.

Thank you, John.

Just a couple of quick questions. You guys are not providing any 2009 guidance at this point?

No, we are not. Not on the revenue side. No.

Okay. And looking ahead till later in the year, do you guys have a date for when the Verizon trials are scheduled?

I believe the location based cell phone services there; there are a couple of venues where the litigation is progressing. I think the first one, the current first trial date, I believe, is in the beginning of December.

Okay.

But actually the case is split and there are a couple of cases, but I think that is the current date that's been established.

Great. And what's your confidence level there in terms of that trial? And I think there are three other big ones slated for 2010. How do you guys feel about those cases in general?

Well, obviously, we feel good about them. Yes, we have chosen to partner with the companies that held these portfolios. One of the benefits is we get to do the due diligence and be objective about the portfolios that we choose to license and enforce, which is the distinct advantage over a company that may have developed their own patent of technology. They go out with what they have and so I think we are certainly very discerning and the more opportunities we keep seeing, the greater opportunity we have to screen through for what we think are very compelling licensing programs. And most of them, again, to remind the people on the call, the National Historical Statistics are only about 3% of patent litigation or even get to a district court trial. It's usually a backdrop for negotiations, so we expect over time probably only a handful of ours will actually go to trial; hopefully most of these matters will get negotiated and settled. And it's also a historical fact that no one is able to predict the outcome based on jury trials and the national statistics are pretty close to 50/50 irrespective of how strongly either side feels about their case. And that is why quite frankly many of them do settle, because it is not very predictable. So, obviously, we like the portfolios that we have partnered on. We think they are strong portfolios. We think the patents are valid and in French. But if do get that far, obviously, it is always a risk of going to trial for both sides.

Sure. And looking at the balance sheet with regard to non-cash stock compensation charges. You guys are thinking that those are going to probably dissipate by the end of this year, or is there a timeline when you think that's going to come off?

Our non-cash stock compensation charges relate to the outstanding stock options and restricted stock awards that we do have and our employees still do hold outstanding option shares that they are investing over a two or three-year period. And so, our stock compensation charges will continue as long as those equity-based awards are investing.

Okay. All right, great. Thanks, guys. Keep up the good work.

Thank you.

(Operator Instructions). It looks like our next question in queue comes from [Paul Berger, Hammock Investor]. Please go ahead, sir.

Paul, did you give any update or can you on the DMT situation?

We did not. The case is still progressing in the claims construction stage. We are hoping at some point this year to get the claims construction up on appeal to the affiliate court. But until we accomplish that, there is probably not going to be an expectation of more licensing activity. We continue to take in the revenues from our existing licensees. The litigation has taken an extensive amount of time in the claims construction. We had our supposedly last claims construction hearings later last year, and hopefully, we'll be getting those out in the spring and be able to get the whole thing up on appeal to the affiliate court sometime around midyear would be my hope.

You're just waiting to see its final ruling, but everybody realizes it is going to go to appeal.

Yes.

Okay.

Okay.

It looks like we have our next question in queue coming from Rob Ammann from RK Capital. Please go ahead.

Okay. Can you give a little more color on the accelerated amortization expense in the quarter related to the patent that you terminated your rights to license?

Yes. There was a portfolio that we've got a significant amount of licensing. It was the multi-dimensional bar code, and we basically completed the licensing program for that, and so, we did not have additional companies to license, so we gave the rights back to the company, which is an operating company, using it in the wrong business, but there was no longer a need for us to do that. As a result of turning it back, we then took an accelerated charge on the remaining balance. It was a portfolio that we acquired back in 2005 when we acquired Global. So it was certainly a very profitable portfolio for us, generated a lot of revenue, but we were done with the licensing, and therefore, we accelerated the remaining carrying value in the fourth quarter.

Okay. So given that acceleration, should we look for ongoing amortization patents to fall at a level nicely below where you were earlier in the year even?

Yes. The scheduled amortization, for example, for 2009 is roughly around 4 million as far as the year is concerned. So, yes, amortization outside of additional patent purchases during 2009 should begin to fall.

Where did you end the year in terms of headcount?

42 I believe. Right?

Right. 42 full time employees.

42 full time. Okay. Thank you.

Thanks, Rob.

Okay. This will conclude the question-and-answer session. So I will now turn the call back over to Mr. Ryan.

Okay. I want to thank you all for being with us today. I look forward to our next conference call with you. In the meantime, if you do have any questions, please give myself or Rob Stewart a call and we'll be happy to help you. Thanks for being with us.

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