Good afternoon, and welcome, ladies and gentlemen, to the Acacia Research first quarter earnings release conference call. At this time, I would like to inform you that this conference is being recorded and that all participants are in a listen-only mode. At the request of the company, we will open the conference up for questions and answers after the presentation. I will now turn the conference over to Mr. Paul Ryan. Please 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. In today's call, the terms we, us and our, refer to Acacia Research Corporation and/or its wholly owned and majority-owned operating subsidiaries. All intellectual property acquisitions, development, licensing, and enforcement activities are conducted solely by certain of Acacia Research Corporation’s wholly and majority-owned operating subsidiaries. With us today are 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, Clayton Haynes will provide you with an analysis of our financial results, and we will then open to up to question – call for questions. Acacia had a great first quarter. We had record revenues of $39.8 million; record 12-month trailing revenues of $90.2 million; a record 13 new licensing programs that began generating revenues in the quarter; and importantly, a record 11 new patent portfolios for future licensing. Our business development, engineering, and licensing teams all delivered exceptional performance in the quarter. Today, I would like to highlight two emerging trends that are beginning to accelerate the growth of Acacia's patent licensing business. These inflection points are a direct result of Acacia's building a great track record of patent licensing success and rapidly growing the scale and quality of our patent assets. The first trend is the growth of our business partnerships with large companies and leading research institutes in the U.S., Europe, and Asia. We are seeing a growing interest by major multinational companies in monetizing their patent assets. As the number one outsource patent licensing company, we are…

Thank you, Paul, and thank you to everyone joining us for today's earnings conference call for the first quarter of 2010. As indicated in today's earnings press release, on a consolidated basis, first quarter 2010 license fee revenues were a record $39,772,000 as compared to $16,957,000 in the first quarter of 2009. First quarter 2010 revenues included license fees from 40 new licensing agreements covering 29 of our technology licensing programs as compared to 28 new licensing agreements covering 16 of our technology licensing programs during the comparable prior-year quarter. First quarter 2010 revenues included initial license fee revenues for 13 of our technology licensing programs. Refer to today's earnings press release for a summary of technology licensing programs contributing to the revenues during the quarter and a summary of the technology licensing programs generating initial license fee revenues during the quarter. Continuing our trend of revenue growth, consolidated trailing 12-month revenues totaled $90.2 million as of March 31, 2010 as compared to $67.3 million as of December 31, 2009 and $56.1 million as of March 31, 2009. Currently, on a consolidated basis, our operating subsidiaries have generated revenues from 73 of our technology licensing programs, up from 52 technology licensing programs as of the end of the comparable prior-year quarter. License fee revenues continue to fluctuate from period to period based on the various factors discussed on previous earnings conference calls and in our periodic filings with the SEC including the dollar amount of agreements executed each period, which is primarily driven by the nature and characteristics of technologies being licensed and the specific terms and conditions of agreements executed each period. Our average margin, defined as gross license fees, less inventor royalties and payments to non noncontrolling interests and contingent legal fees for the portfolios generating revenues during…

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

Thank you, sir. (Operator Instructions) Please standby for your first question, sir. And your first question comes from the line of Mark Argento with Craig-Hallum Capital. Mark Argento – Craig-Hallum Capital: Yes. Hi, good afternoon, guys.

Hi, Mark. Mark Argento – Craig-Hallum Capital: Congratulations on a great breakout quarter for you guys.

Thank you. Mark Argento – Craig-Hallum Capital: Clearly, it looks like the size and scope of some of your licensing arrangements is increasing fairly significantly. You alluded to some of the different types of business that you are doing going forward. Could you talk a little bit about how you look at the pipeline of the larger-type transactions? In particular, how should we start thinking about your ability to replicate what we saw this quarter?

Well, I think the opportunity certainly has – we have scaled the business and now have well over 140 patent portfolios. I think the issue for a number of companies is that – I think, based on the scale, we may over time see a shift from the repeat litigation model to kind of the engagement in ongoing discussion model where we will probably enter into multiple portfolio license negotiations simultaneously with these companies and hopefully, resolve a number of licensing issues and perhaps even set in place some mechanisms for go-forward licensing. And because the concentration of some of these large portfolios is with major companies, that provides significant revenue opportunity because of the size and usage of the companies on a unit basis, as well as the number of portfolios. So I think the issue for our shareholders is, certainly if you watch us continue to scale the assets and if we continue to execute on this level, it's going to get more opportunities, I think, to engage in broader ongoing licensing relationships with major U.S. corporations and corporations offshore as well. And the benefit to us and our IP partners, because as you know, the vast majority of time we are partnering on these assets and splitting revenues. The more efficiencies we can drive into the process, the higher margins for both our shareholders and for our partner IP holders. And on the other side of the equation, I think some larger companies are realizing that there is – and there was a recent article in Business Week that was mentioned by some large companies and we concurred with them that litigation is a very inefficient way to conduct licensing activities. The litigation costs themselves sometimes far outweigh the actual underlying licensing of that. So I think more large companies are realizing that we are here to stay, we are a broad platform, we are a source of licensing, we are great screening (inaudible) in the patent community, more of them, hopefully, will choose to engage us on a regular business basis. Mark Argento – Craig-Hallum Capital: Great. And it looks like you – I mean, the amount of IP you brought in the quarter was very impressive. I know on the wireless side and DRAM, clearly the size and scope of these portfolios are increasing, which I assume will help the other part of the business in terms of the size and scope of license deals. But how quickly are you able to take IP and actually start to license it? Meaning have you – some of the portfolios you brought in, have those already been licensed out this quarter? And is that time to market really shrinking now that the quality is there and your relationships clearly with a lot of the larger players are improving?

Well, certainly there is the possibility of the time shrinking dramatically. As you know, historically, we've given indications that it's kind of a minimum of a year and often times, two years to expect any revenue out of a new portfolio. The practical matter is if we are engaged in simultaneous negotiations, basically companies wishing to settle all outstanding issues with us or look at all of our portfolios, certainly newer ones that have come in, generally will get swept up in those licensing efforts as well and some of that occurred this quarter where we had a number of new portfolios that were licensed very early stage in certain transactions that we entered into. So yes, that definitely will begin to happen depending on which portfolios needed to be licensed by which companies. But certainly, if we are in negotiation, yes, I think the increasing trend is they are going to want to resolve all issues and take licenses to those portfolios that they need to, irrespective of whether we've filed litigation or how long the litigation has been ongoing. Mark Argento – Craig-Hallum Capital: Great. Well, it's nice to see the model starting to really click and congratulations again. Thanks.

Okay. Thank you, Mark.

Our next question comes from the line of Jonathan Skeels of Davenport. Jonathan Skeels – Davenport: Hey, guys, congratulations on the quarter, very good number. I guess, first, just can you discuss any detail around how these multiple licensing agreements are structured? Are they for a period of time and is there any recurring nature to any of the revenues from them?

We can't discuss, obviously, any specific agreements. I would say, generally, well, how we describe them is companies engaging us to basically complete licensing of all the portfolios that we and they think are appropriate. In terms of any timing or terms or anything, I think going forward there will probably be a variety of arrangements with companies. I don't think there will be any absolute standard or – we are flexible, but we want to get our IP partners' patents licensed the most efficient and quickest way we can and generate the revenues for us and our – for our shareholders and for them. And so we are certainly probably going to enter into a variety of relationships with large companies. It's not uncommon, as you know, in cross-licensing, where companies periodically meet and resolve these issues and don't litigate each and every matter. So certainly, if we can move our relationship to that type of a format, even though we don't need licenses flowing the other way, if you think of it in terms of how most major companies conduct cross-licensing, our activities would probably parallel those types of arrangements. But we can't give any specific details because – and quite frankly, I think that there will be a variety of them; there will be no one standard agreement. Jonathan Skeels – Davenport: Okay. And then just on the balance sheet, I see the deferred revenue balance picked up pretty nicely in the quarter. And I guess – or some of the agreements you are signing now, do they now include some portion of deferred revenue that you haven't recognized in a quarter and should we expect more of that going forward?

Well, if there were any deferred revenue, it would be in the financials.

Yes. And so for example, in the March 31, 2010 column, you'll see that deferred revenue is – actually, it's a fairly small number as of the end of the first quarter of 2010. We had a balance of $1.5 million as of the end of last year and that $1.5 million was actually recognized in the income statement during the first quarter of 2010 when the revenue recognition criteria associated with that particular dollar amount was satisfied. So deferred revenues as of the end of the first quarter is actually a fairly small number. Jonathan Skeels – Davenport: Okay, sorry. And I guess lastly on just the cash balance, what do you plan on doing with the cash? Obviously, your business doesn't require too much capital investment. I know from time to time you do acquire some portfolios. Can you just talk about what your plans are on – with the cash?

Well, one of the issues is as we expand the scope of our business to enter into partnering agreements with major multinational companies, having a strong balance sheet is important to them. And so I can see – I know in the past we gave guidance that we wanted to have kind of a $35 million, $40 million minimum threshold. I would say kind of we are moving our perspective now that we'd like to have a balance sheet with a $100 million plus in cash for dealing with these major multinational companies on partnering deals and I think they'd like to see that kind of balance sheet as well. Jonathan Skeels – Davenport: All right, great. Thank you.

Our next question comes from the line of Bennett Notman of Wisco. Bennett Notman – Wisco: Good afternoon, guys. And let me add my kudos for your great performance across the board.

Thank you. Bennett Notman – Wisco: Could you just talk a little bit – you had, obviously, a very strong gross margin line or very low cost of revenue in the quarter. I'm guessing that was probably influenced by the timing of some larger deals that last over time. How will that pan out over time and will you have to have some expenses in future quarters for new portfolios that are brought in under these multi-portfolio licensing deals that might not have initial revenue in these later quarters because they are covered by those previous payments, if you get my drift? What's going to be the overall impact on margins?

Well, there wouldn't be any forward costs based on the transactions we completed in the first quarter. Any costs we have were realized – recognized in the first quarter. And again, there seem to be, I think, significant variability quarter to quarter. As we have known in the past, our revenues have been uneven. Unfortunately, they've been uneven on a progressively higher level. Similarly, I think our effective margins are going to be uneven quarter to quarter, depending on, again as Clayton described, the mix of transactions and whatever arrangements we have in terms of the law firms on the outside, their participation, as well as our individual partnering deals with IP owners. So it is going to be variable. We want to caution people that this is not a permanent move to a higher margin level business; it's going to fluctuate quarter to quarter. But I would say more on the norm, probably our margins are going to be closer to the 45%, 50% traditional mark than they are at this particular quarter. Bennett Notman – Wisco: So – I mean, obviously this quarter was significantly higher than we've ever seen before. Was this just driven by the absence of legal expense in some of the larger deals that got done because they were settled without having to go to the lawyers?

No. It was really based on the mix of transactions that we did that had any kind of obligations to both law firms and IP partners as well. There was a combination, but beyond that, we can't really, without violating the confidentialities of individual deals, go into the details of that. But I think the important takeaway is that we want to caution people that the high level of margins we achieved this quarter isn't necessarily a new norm, and the more likely norm is going in our traditional range and we'll probably have quarters where we will have significantly higher margins, but don't expect it on a regular basis. Bennett Notman – Wisco: All right, great. And then, obviously, adding 11 portfolios in the quarter was fantastic. Is the pipeline such that we should start thinking of normal adds, more in the eight to 10-plus range as opposed to kind of the four to six range or how – should we generally think that you are at a higher pipeline for new portfolios now?

Well, we like to exceed at our target that we've indicated to people is about 30 portfolios per year. And obviously, we are running ahead of that pace now and we'd like to overachieve, but that's kind of the basis, 30, to be expected. And I think one of the issues, though, is certainly you can see some of the portfolios we are bringing in have much larger numbers of patents and probably, broader licensing opportunities. And I think the – definitely, the licensing revenue per opportunity, per portfolio is probably increasing and hopefully, we will overachieve on the 30 target for the year.

Yes. Some of you – this is Chip. Some of you have seen our stockholder presentation where we talk about the dissemination of IP between large companies and smaller companies, research institutions, and universities. About 40% of the patents out there is held by what we would consider large companies. Traditionally, our business has been driven by the 60% side, the universities, research centers, and the smaller companies. As we've talked about in the last couple of quarters, we've seen significant interest from these large companies as evidenced by the releases we've had over the last two-and-a-half quarters. And if you think about adding 40% of the market into our potential – we are not abandoning our legacy business, we like that, we've done a very good job of it. But incrementally, we are adding significant opportunities from major corporations who are seeing the evolution of this – of patents and asset class. And as they look at it, we are not the perfect partner for everybody, but we are a good partner for a lot of people. There are a lot of big companies that already have these kinds of groups within their corporation. There are others that don't and look to us to extend our partnering models just like we would with a university into these large corporations. And I think you're seeing that manifest itself in the number of deals that we are currently looking at; we are putting under contract for due diligence, and the number of deals we are closing on. Bennett Notman – Wisco: Great. Thank you.

(Operator Instructions) Our next question comes from the line of Doug Thomas of JET Investment. Doug Thomas – JET Investment: Just I wanted to add my word of congratulations. I guess, not too many of these calls have gone more than a half-hour, so I think that's a testament to where we are headed. And, Paul, I thought it was funny the headline in the Business Week article was "The Company Tech Loves to Hate," which to me is sort of indicative of – I mean – I guess you'd say even bad publicity is good to have, I suppose, but I just wanted to –

Well, sometimes the headlines don't reflect – I mean we are engaged in a lot of good conversations with many of these major companies. Doug Thomas – JET Investment: Yes, of course. I know that.

And I think they – for the most part, they take in-licensing responsibly. So I think the headlines sometimes really don't indicate what's really going on in the marketplace. And I think certainly our direct negotiations and discussions with many of these major companies are very productive and I think both sides are looking to bring efficiencies to the process to both sides' advantage. So I wouldn't get too carried away with the – with that type of headline stuff. Doug Thomas – JET Investment: No, I thought it was – I kind of thought it was funny, actually.

But it did bring publicity for a small company is always good. Doug Thomas – JET Investment: Absolutely. What I wanted to ask you was the two initiatives which you mentioned today and have talked about. Certainly, over time, they have to add to your visibility and to the legitimacy with which you pursue some of these negotiations prior to making the decision to go to court. It appears to me like some of the best traction that you seem to be gaining is in terms of, really, the court of credibility when it comes to the value that these patents have to your partners.

Yes, I agree. I think – look, we've had to earn our stripes and build a track record. We have gone to trial when we needed to, and people haven't settled with us. So we've shown that we will pursue it. As you know, we are licensing patents in one case that expired several years ago, we are tenacious. People can't really outwait us and eventually, I think you earn people's respect in the licensing market. But most importantly, I think the professionals that are here at this company have the respect of their counterparts at major companies. They are realistic about licensing rates and negotiations and what needs to be done. And over time, you earn that credibility and I think we are starting to benefit from that in terms of, perhaps, taking some of the friction out of the process and making the process a little more efficient. And part of it just comes with time and repeat deals. As we negotiate licenses with some of these very large companies and once you negotiate the third, fourth, fifth licenses, the people involved get to know each other, they gain more confidence and respect for each other, and I think that's certainly helping right now expedite a lot of licensing agreements as well. Doug Thomas – JET Investment: And I also wanted to ask you – it seems like how you've been able to attract some of the best talent around. Obviously, there's been a lot of news surrounding what a tough environment it's been for most law firms and lawyers, in general. And I just wonder if, given the – sort of the acceleration and opportunities for you, if you are not seeing sort of people come out – good people come out of the woodwork and really want to make Acacia the place where they do business.

Certainly we are having more opportunities there. When we first started, this was a unique business that didn’t have a history. But the more important thing for us is retaining the great team we've put in place. We've had exceptionally low turnover here the last couple of years, which I think is indicative of people liking to work here and seeing the upside. And we think we can leverage the business model as we've indicated previously. One of the things that I find most exciting about the business model is all of our people want to take on more responsibilities. So I think we can significantly grow revenues and maintain costs and that's certainly going to be very beneficial to our shareholders. So the issue for us right now, the primary issue, is retaining the talented people that have joined. They were now have been working together in teams the past few years and are extremely efficient.

What we've also seen with this slowdown in the legal industry is that the best firms aren’t cutting their best people lose. But they do have additional time on their hands. And they are not fully able to leverage the time on a fee basis. So firms that in the past had not embraced a contingent model are quickly embracing a contingent model, which under our relationship, has paid off very handsomely for some. Doug Thomas – JET Investment: Yes.

And so it is – it has really opened up another big area of opportunity for us when we are looking around for law firms to help us monetize these portfolios. Doug Thomas – JET Investment: Thanks. The thing of it is, yes – I mean, anybody who wants to leave, you can't leave now, you are just getting rolling. What's funny is – I don't know if you remember this, Paul, but the fall of '03, October of '03, was the – I think Acacia was the first company that I wrote – that I recommended to clients when I first started JET, and it's been – I just wanted to say congratulations and it's nice to see you guys really doing well.

Well, we appreciate your support.

Yes, I remember it well. At that time, you were – certainly, we were at our infancy and you were the only company following us, yes. Doug Thomas – JET Investment: Yes. But I do really think with the momentum you've got, it's – it seems extremely positive.

Okay. Thank you, Doug. Doug Thomas – JET Investment: Thanks.

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

Okay. Well, thank you all for being with us. If you have any questions following the call, you can call myself or Rob Stewart, our Head of Investor Relations. And if not, we look forward to speaking with you next quarter. Thank you.

Ladies and gentlemen, if you wish to access the replay for this call, you may do so by dialing 800-642-1687 or 706-645-9291 with confirmation code 61384901. This concludes our conference call for today. Thank you for participating and have a nice day. All parties may now disconnect.