ACACIA RESEARCH CORPORATION

FORM 10-K ANNUAL REPORT

FISCAL YEAR ENDED DECEMBER 31, ~~2007~~2008

TABLE OF CONTENTS

Item		Page
	PART I

1.	Business	1
1A.	Risk Factors	6
1B.	Unresolved Staff Comments	15
2.	Properties	15
3.	Legal Proceedings	15
4.	Submission of Matters to a Vote of Security Holders	16


	PART II

5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
	Purchases of Equity Securities	17
6.	Selected Financial Data	20
7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
7A.	Quantitative and Qualitative Disclosures About Market Risk	32
8.	Financial Statements and Supplementary Data	32
9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	32
9A.	Controls and Procedures	32
9B.	Other Information	33



	PART III

10.	Directors, Executive Officers and Corporate Governance	34
11.	Executive Compensation	34
12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	34
13.	Certain Relationships and Related Transactions, and Director Independence	34
14.	Principal Accounting Fees and Services	34



	PART IV

15.	Exhibits, Financial Statement Schedules	35

Item Page
PART I

1. Business 1
1A. Risk Factors 6
1B. Unresolved Staff Comments 13
2. Properties 13
3. Legal Proceedings 13
4. Submission of Matters to a Vote of Security Holders 13

PART II

5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities 14
6. Selected Financial Data 17
7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 19
7A. Quantitative and Qualitative Disclosures About Market Risk 29
8. Financial Statements and Supplementary Data 29
9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 29
9A. Controls and Procedures 29
9B. Other Information 29

PART III

10. Directors, Executive Officers and Corporate Governance 30
11. Executive Compensation 30
12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 30
13. Certain Relationships and Related Transactions, and Director Independence 30
14. Principal Accounting Fees and Services 30

PART IV

15. Exhibits, Financial Statement Schedules 31

PART I

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

As used in this Annual Report on Form 10-K, “we,” “us” and “our” refer to Acacia Research Corporation and/or its wholly owned operating subsidiaries. All intellectual property acquisition, development, licensing and enforcement activities are conducted solely by certain of our wholly owned operating subsidiaries.

This report contains forward-looking statements within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. Reference is made in particular to the description of our plans and objectives for future operations, assumptions underlying such plans and objectives, and other forward-looking statements included in this report. Such statements may be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “believe,” “estimate,” “anticipate,” “intend,” “continue,” or similar terms, variations of such terms or the negative of such terms. Such statements are based on management’s current expectations and are subject to a number of factors and uncertainties, which could cause actual results to differ materially from those described in the forward-looking statements. Such statements address future events and conditions concerning product development, capital expenditures, earnings, litigation, regulatory matters, markets for products and services, liquidity and capital resources and accounting matters. Actual results in each case could differ materially from those anticipated in such statements by reason of factors such as future economic conditions, changes in consumer demand, legislative, regulatory and competitive developments in markets in which we and our subsidiaries operate, and other circumstances affecting anticipated revenues and costs, as more fully disclosed in our discussion of risk factors incorporated by reference in Item ~~1A.~~1A. of Part I of this report. We expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. Additional factors that could cause such results to differ materially from those described in the forward-looking statements are set forth in connection with the forward-looking statements.

As used in this Form 10-K, “we,” “us” and “our” refer to Acacia Research Corporation and/or its wholly owned operating subsidiaries. All intellectual property acquisition, development, licensing and enforcement activities are conducted solely by certain of Acacia Research Corporation’s wholly owned operating subsidiaries.

Item 1.

BUSINESS

General

Our operating subsidiaries acquire, develop, license and enforce patented technologies. Our operating subsidiaries generate license fee revenues and related cash flows from the granting of licenses for the use of patented technologies that our operating subsidiaries own or control. Our operating subsidiaries 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, if necessary, with the enforcement against unauthorized users of their patented technologies.

We are a leader in licensing patented technologies and have established a proven track record of licensing success with over 620 license agreements executed to date, across 48 of our technology license programs. Currently, on a consolidated basis, our operating subsidiaries own or control the rights to over 100 patent portfolios, which include U.S. patents and certain foreign counterparts, covering technologies used in a wide variety of industries.

~~Item 1.~~ ~~BUSINESS~~CombiMatrix Group Split-Off Transaction and Related Discontinued Operations. In January 2006, our board of directors approved a plan for our former wholly owned subsidiary, CombiMatrix Corporation, or CombiMatrix, the primary component of our life science business, known as the CombiMatrix group, to become an independent publicly-held company. On August 15, 2007, or the Redemption Date, CombiMatrix was split-off from us through the redemption of all outstanding shares of Acacia Research-CombiMatrix common stock in exchange for the distribution of new shares of CombiMatrix common stock, on a pro-rata basis, to the holders of Acacia Research-CombiMatrix common stock on the Redemption Date. We refer to this transaction as the Split-Off Transaction. Subsequent to the Redemption Date, we no longer own any equity interests in CombiMatrix and the CombiMatrix group is no longer one of our business groups. Subsequent to the Split-Off Transaction, our only business is our intellectual property licensing business.

Refer to Note 10A to our consolidated financial statements, included elsewhere herein, for information regarding presentation of the assets, liabilities, results of operations and cash flows for the CombiMatrix group as “Discontinued Operations,” for all periods presented, in accordance with guidance set forth in Statement of Financial Accounting Standards (“SFAS”) No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets,” or SFAS No. 144.

Capital Structure. Pursuant to the terms of the Split-Off Transaction, all outstanding shares of Acacia Research-CombiMatrix common stock were redeemed, and all rights of holders of Acacia Research-CombiMatrix common stock ceased as of the Redemption Date, except for the right, upon the surrender to the exchange agent of shares of Acacia Research-CombiMatrix common stock, to receive new shares of CombiMatrix common stock. As a result of, and immediately following, the consummation of the Split-Off Transaction, our only class of common stock outstanding was our Acacia Research-Acacia Technologies common stock.

On May 20, 2008, our stockholders approved an amendment and restatement of our Certificate of Incorporation to eliminate all references to Acacia Research-CombiMatrix common stock and all provisions relating to the rights and obligations of the Acacia Research-CombiMatrix common stock. In addition, the amendment and restatement changed the name of the “Acacia Research-Acacia Technologies common stock” to “common stock,” and our common stock is the only class of common stock authorized and issuable.

Other

We were originally incorporated in California in January 1993 and reincorporated in Delaware in December 1999. Our website address is www.acaciaresearch.com. 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, and amendments to those reports, available free of charge on our website as soon as reasonably practicable after we file these reports. In addition, we post the following information on our website:

●	our corporate code of conduct, our code of conduct for our board of directors and our fraud policy; and

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

The public may read and copy any materials that we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. 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.

BUSINESS OVERVIEW

~~Acacia Research Corporation’s~~Intellectual Property Licensing Business

~~CombiMatrix Group Split-off Transaction and Related Discontinued Operations.~~ ~~In January 2006, Acacia Research Corporation’s board~~ Refer to “Patented Technologies” below for a partial summary of ~~directors approved a plan for its wholly~~patent portfolios owned subsidiary, CombiMatrix Corporation, the primary component of Acacia Research Corporation’s CombiMatrix group, to become an independent public company. CombiMatrix Corporation’s registration statement on Form S-1 was declared effectiveor controlled by the Securities and Exchange Commission (“SEC”) on June 8, 2007. Following the redemption period required by Acacia Research Corporation’s Restated Certificate of Incorporation, on August 15, 2007 (the “Redemption Date”), CombiMatrix Corporation was split-off from Acacia Research Corporation through the redemption of all outstanding shares of Acacia Research-CombiMatrix common stock in exchange for the distribution of new shares of CombiMatrix Corporation common stock, on a pro-rata basis, to the holders of Acacia Research-CombiMatrix common stock on the Redemption Date (the “Split-off Transaction”). On the Redemption Date, every ten (10) shares of Acacia Research-CombiMatrix common stock outstanding on August 15, 2007, was redeemed for one (1) share of common stock of CombiMatrix Corporation. Subsequent to the Redemption Date, Acacia Research Corporation no longer owns any equity interests in CombiMatrix Corporation and the two companies operate independently of each other.

~~As a result of the Split-off Transaction, we have disposed~~certain of our ~~investment~~operating subsidiaries. We are a leader in CombiMatrix Corporation. Refer to Note 10A to the Acacia Research Corporation consolidated financial statements, included elsewhere herein, for information regarding presentation of the assets, liabilities, results of operationspatent licensing and cash flows for the CombiMatrix group as “Discontinued Operations,” for all periods presented, in accordance with guidance set forth in SFAS No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS No. 144”).

~~Capital Structure~~

As a result of the Split-off Transaction, Acacia Research Corporation no longer owns any equity interests in CombiMatrix Corporation and the CombiMatrix group is no longer a business group of Acacia Research Corporation. Pursuant to the terms of the Split-off Transaction, all outstanding shares of Acacia Research-CombiMatrix common stock were redeemed, and hence, all rights of holders of Acacia Research-CombiMatrix common stock ceased as of the Redemption Date, except for the right, upon the surrender to the exchange agent of shares of Acacia Research-CombiMatrix common stock, to receive new shares of CombiMatrix Corporation stock pursuant to the exchange ratio described above. Subsequent to the consummation of the Split-off Transaction, Acacia Research Corporation’s only class of common stock outstanding is its Acacia Research-Acacia Technologies common stock.

Prior to the Split-off Transaction, Acacia Research Corporation had two classes of common stock outstanding, its Acacia Research-Acacia Technologies common stock (“AR-Acacia Technologies stock”) and its Acacia Research-CombiMatrix common stock (“AR-CombiMatrix stock”). AR-Acacia Technologies stock was intended to reflect separately the performance of Acacia Research Corporation’s Acacia Technologies group. AR-CombiMatrix stock was intended to reflect separately the performance of Acacia Research Corporation’s CombiMatrix group. Although the AR-Acacia Technologies stock and the AR-CombiMatrix stock were intended to reflect the performance of our ~~different business groups, they were both classes of common stock of Acacia Research Corporation and were not stock issued by the respective groups.~~

Our Board of Directors has approved an amendment and restatement of our certificate of incorporation to remove reference to AR-CombiMatrix stock which was cancelled as a result of the redemption, to rename AR-Acacia Technologies stock as the only class of common stock, and to provide that all 100,000,000 shares of AR-Acacia Technologies stock currently authorized may be issued as a single class of common stock. The amendment and restatement of our certificate of incorporation is subject to approval by the stockholders at the next annual meeting of stockholders, as further described in our proxy statement to be filed. If adopted, each share of common stock will be entitled to one vote and the relative voting strength of the common stock will be equal notwithstanding the trading price of the common stock.

~~Other~~

~~Acacia Research Corporation, a Delaware corporation, was originally incorporated in California in January 1993 and reincorporated in Delaware in December 1999. Our website address is~~ ~~www.acaciaresearch.com~~. We make our filings with the SEC, including our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports, available free of charge on our website as soon as reasonably practicable after we file these reports. In addition, we post the following information on our website:

·	~~our corporate code of conduct, our board of directors – code of conduct and our fraud policy;~~

·	~~charters for our audit committee, nominating and corporate governance committee, disclosure committee and compensation committee;~~

The public may read and copy any materials that Acacia Research Corporation files with the SEC at the SEC’s Public Reference Room at 450 Fifth Street N.W., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Also, the SEC maintains an Internet website that contains reports, proxy and information statements, and other information regarding issuers, including the Acacia Research Corporation, that file electronically with the SEC. The public can obtain any documents that Acacia Research Corporation files with the SEC at ~~http://www.sec.gov~~.

~~BUSINESS~~

~~Intellectual Property Licensing Business~~

Acacia Research Corporation’s operating subsidiaries acquire, develop, license and enforce patented technologies. Our operating subsidiaries generate license fee revenues and related cash flows from the granting of licenses for the use of patented technologies that our operating subsidiaries own or control. Our operating subsidiaries 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, if necessary, with the enforcement against unauthorized users of their patented technologies. Currently, on a consolidated basis, our operating subsidiaries own or control the rights to 91 patent portfolios, which include U.S. patents and certain foreign counterparts, covering technologies used in a wide variety of industries. Our operating subsidiaries have established a proven track record of licensing success with more than ~~540~~620 license agreements executed to date. To date, on a consolidated basis, we have generated revenues from 48 of our technology licensing and enforcement programs. Our professional staff includes in-house patent attorneys, licensing executives, engineers and business development executives.

Our ~~clients~~partners are primarily individual inventors and small companies who have limited resources and/or expertise to effectively address the unauthorized use of their patented technologies, and also include large companies seeking to effectively and efficiently monetize their portfolio of patented technologies. In a typical ~~client~~partnering arrangement, our operating subsidiary will acquire a patent portfolio, or acquire rights to a patent portfolio, with our ~~clients~~partner receiving an upfront payment for the purchase of the patent portfolio or patent portfolio rights, or receiving a percentage of our operating subsidiaries net recoveries from the licensing and enforcement of the patent portfolio, or a combination of the two.

In January 2005, our wholly owned subsidiary, Acacia Global Acquisition Corporation, acquired substantially all of the assets of Global Patent Holdings, LLC, a privately held patent holding company, which owned 11 patent licensing companies (“GPH Acquisition”). In connection with the acquisition we acquired ownership of companies that own or control the rights to 27 patent portfolios, which included 120 U.S. patents and certain foreign counterparts, covering technologies used in a wide variety of industries. Refer to Note 7 to our consolidated financial statements included in this report for additional information regarding the GPH Acquisition. Subsequent to the GPH Acquisition, we have continued to execute our business strategy in the area of patent portfolio acquisitions, including the acquisition of, or the rights to, a total of 59 additional patent portfolios covering a wide variety of technologies and with applications across several additional industries. These and future patent portfolio acquisitions will continue to expand and diversify our operating subsidiaries' revenue generating opportunities and accelerate the execution of our overall business strategy, as we continue to build our leadership position in patent licensing.

Business Model and Strategy

The business model associated with the licensing and enforcement activities conducted by our operating subsidiaries is summarized in the following diagram:

Licensing and Enforcement Business

Our intellectual property acquisition, development, licensing and enforcement business strategy, conducted solely by our operating subsidiaries, includes the following key elements:

·●	Identify Emerging Growth Areas where Patented Technologies will Play a Vital Role

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, including several of the technologies controlled by our operating subsidiaries, some of which are summarized below, become core technologies in the way products and services are manufactured, sold and ~~delivered.~~delivered by companies across a wide array of industries. Our operating subsidiaries identify core, patented technologies that have been or are anticipated to be widely adopted by third parties in connection with the manufacture or sale of products and services.

· ●	Contact and Form Alliances with Owners of Core, Patented Technologies

Often individual inventors and small companies have limited resources and/or expertise and are unable to effectively address the unauthorized use of their patented technologies. Individual inventors and small companies may lack sufficient capital resources and may also lack in-house personnel with patent licensing expertise and/or experience, which may make it difficult to effectively out-license and/or enforce their patented technologies.

For years, many large companies have earned substantial revenue licensing patented technologies to third parties. Other companies that do not have internal licensing resources and expertise have continued to record the capitalized carrying value of their core and or non-essential intellectual property in their financial statements, without deriving income from their intellectual property or realizing the potential value of their intellectual property assets. Securities and financial reporting regulations require these companies to periodically evaluate and potentially reduce or write-off these intellectual property assets if they are unable to substantiate these reported carrying values.

~~Acacia Research Corporation’s~~Our operating subsidiaries seek to enter into business agreements with owners of intellectual property that do not have experience or expertise in the areas of intellectual property licensing and enforcement or that do not possess the in-house resources to devote to intellectual property licensing and enforcement activities.

· ●	Effectively and Efficiently Evaluate Patented Technologies for Acquisition, Licensing and Enforcement

Subtleties in the language of a patent, recorded interactions with the patent office, and the evaluation of prior art and literature can make a significant difference in the potential licensing and enforcement revenue derived from a patent or patent portfolio. Our specialists are trained and skilled in these areas. It is important to identify potential problem areas, ~~prior to acquisition and commercialization~~if any, and determine whether potential problem areas can be overcome, ~~before~~prior to acquiring a patent portfolio or launching aan effective licensing program. We have developed processes and procedures for identifying problem areas and evaluating the strength of a patent portfolio before the decision is made to allocate resources to an acquisition or aan effective licensing and enforcement effort.

· ●	Purchase or Acquire the Rights to Patented Technologies

After evaluation, our operating subsidiaries may elect to purchase the patented technology, or become the exclusive licensing agent for the patented technology in all or in specific fields of use. In either case, the owner of the patent generally retains the rights to a portion of the net revenues generated from a patent’s licensing and enforcement program. Our operating subsidiaries generally control the licensing and enforcement process and utilize ~~their~~ experienced in-house personnel to reduce outside costs and to ensure that the necessary capital and expertise is allocated and deployed in an efficient and cost effective manner.

· ●	Successfully License and Enforce Patents with Significant Royalty Potential

As part of the patent evaluation process employed by our operating subsidiaries, significant consideration is also given to the identification of potential infringers, industries within which the potential infringers exist, longevity of the patented technology, and a variety of other factors that directly impact the magnitude and potential success of a licensing and enforcement program. Our specialists are trained in evaluating potentially infringing technologies and in presenting the claims of our patents and demonstrating how they apply to companies we believe are using our technologies in their products or services. These presentations ~~generally~~can take place in a non-adversarial business setting, but can also occur through the litigation process, if necessary.

Patented Technologies

Currently, on a consolidated basis, our operating subsidiaries own or control the rights to 91over 100 patent portfolios, with patent expiration dates ranging from ~~2008~~2009 to ~~2027,~~2028, and covering technologies used in a wide variety of industries, including the following:

· Aligned Wafer Bonding	· ~~Embedded Broadcast Data~~Enhanced Internet Navigation	· ~~Portable Storage Devices With Links~~Peer To Peer Communications
· Audio Communications Fraud Detection	· ~~Encrypted Media & Playback Devices~~Enterprise Content Management	· ~~Product Activation~~Physical Access Control
· Audio Storage and Retrieval System	· ~~Enhanced Internet Navigation~~Facilities Operation Management System	· ~~Projector~~Picture Archiving & Communication Systems
· Audio Video Enhancement & Synchronization	· ~~Facilities Operation Management System~~File Locking In Shared Storage Networks	· ~~Purifying Nucleic Acid~~Pointing Device
· Authorized Spending Accounts	· ~~File Locking In Shared Storage Networks~~Flash Memory	· ~~Radio Communication With Graphics~~Pop-Up Internet Advertising
· Automated Notification of Tax Return Status	· ~~Flash Memory~~Fluid Flow Control And Monitoring	· ~~Relational Database Access~~Portable Storage Devices With Links
·Automated Tax Reporting	·Hearing Aid ECS	·Product Activation
· Broadcast Data Retrieval	· ~~Fluid Flow Control And Monitoring~~Heated Surgical Blades	· ~~Remote Management Of Imaging Devices~~Projector
· Color Correction For Video Graphics Systems	· ~~Graphics Data~~High Quality Image Processing	· ~~Remote Video Camera~~Purifying Nucleic Acid
· Compact Disk	· ~~Hearing Aid ECS~~High Resolution Optics	· ~~Resource Scheduling~~Radio Communication With Graphics
· Compiler	· ~~Heated Surgical Blades~~Image Resolution Enhancement	· ~~Rule Based Monitoring~~Relational Database Access
· Computer Graphics	· ~~High Quality Image Processing~~Improved Lighting	· ~~Software Feature Enablement~~Remote Management Of Imaging Devices
· Computer Memory Cache Coherency	· ~~High Resolution Optics~~Improved Printing	· ~~Software License Management~~Remote Video Camera
· Computer Simulations	·~~Image Resolution Enhancement~~	·~~Spreadsheet Automation~~
·~~Computing Device Performance~~	· Interactive Content In A Cable Distribution System	· ~~Storage Technology~~Resource Scheduling
· Continuous TV Viewer Measuring	· ~~Interstitial~~ Internet Radio Advertising	· ~~Surgical Catheter~~Rule Based Monitoring
· Copy Protection	· ~~Laptop Connectivity~~Interstitial Internet Advertising	· ~~Telematics~~Software License Management
· Credit Card Fraud Protection	· Laparoscopic Surgery	·Spreadsheet Automation
·Database Access	·Laptop Connectivity	·Storage Technology
·Database Management	·Lighting Ballast	·Surgical Catheter
·Database Retrieval	·Location Based Services	·Telematics
·Data Encryption	·Manufacturing Data Transfer	· Television Data Display
· ~~Database Access~~Digital Newspaper Delivery	· Medical Image Stabilization	· Television Signal Scrambling
· ~~Database Management~~Digital Video Production	· Medical Monitoring	· Text Auto-Completion
· ~~Data Encryption~~DMT®	· Micromirror Digital Display	· Vehicle Anti-Theft Parking Systems
· ~~Digital Newspaper Delivery~~Document Generation	· Microprocessor ~~Enhancement~~	·~~Vehicle Location~~
·~~Digital Video Production~~	·~~Multi-Dimensional Bar Codes~~	· Vehicle Maintenance
· ~~DMT®~~Document Retrieval Using Global Word Co-Occurrence Patterns	·Microprocessor Enhancement	· ~~Multi-Dimensional Database Compression~~	·~~Video Editing~~
·~~Document Generation~~	·~~Online Ad Tracking~~	·~~Virtual Computer Workspaces~~
·~~Document Retrieval Using Global Word Co-Occurrence Patterns~~	·~~Parallel Processing With Shared Memory~~	·~~Virtual Server~~Vehicle Occupant Sensing
· DRAM (Dynamic Random Access Memory)	· ~~Peer To Peer Communications~~Multi-Dimensional Database Compression	· ~~Web Personalization~~Videoconferencing
· Dynamic Manufacturing Modeling	· ~~Physical~~Network Remote Access ~~Control~~	· ~~Wireless Digital Messaging~~Virtual Computer Workspaces
· Ecommerce Pricing	· ~~Picture Archiving & Communication Systems~~Online Ad Tracking	· ~~Wireless Traffic Information~~Virtual Server
· Electronic Address List Management	· ~~Pointing Device~~Online Auction Guarantees	·Wireless Data
·Electronic Message Advertising	·Online Promotion	·Wireless Digital Messaging
·Embedded Broadcast Data	·Optical Switching	· Workspace With Moving Viewpoint
· ~~Electronic Message Advertising~~Encrypted Media & Playback Devices	· ~~Pop-Up Internet Advertising~~Parallel Processing With Shared Memory

Patent Enforcement Litigation

Our operating subsidiaries are often required to engage in litigation to enforce their patents and patent rights. Certain of our operating subsidiaries are parties to ongoing patent enforcement related litigation, alleging infringement by third parties of certain of the patented technologies owned or controlled by our operating subsidiaries.

Competition

We expect to encounter increased competition in the area of patent ~~acquisition~~acquisitions and enforcement. This includes an increase in the number of competitors seeking to acquire the same or similar patents and technologies that we may seek to acquire. ~~Companies such as British Technology Group, Rembrandt Management Group, and~~Entities including Allied Security Trust, Altitude Capital Partners, Coller IP, Intellectual Ventures, ~~LLC are already~~Millennium Partners, Open Innovation Network, RPX Corporation and Rembrandt IP Management compete in ~~the business of~~ acquiring ~~the~~ rights to patents, ~~for the purpose of licensing and enforcement,~~ and we expect more ~~companies~~entities to enter the market. ~~See, Risk Factors on page 6.~~

We also compete with venture capital firms and various industry leaders for technology licensing opportunities. Many of these competitors may have more financial and human resources than our operating subsidiaries. As we become more successful, 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 rely upon to generate future revenue.

Other companies may develop competing technologies that offer better or less expensive alternatives to our patented technologies that we may acquire and/or out-license. Many potential competitors may have significantly greater resources than the resources that our operating subsidiaries possess. Technological advances or entirely different approaches developed by one or more of our competitors could render certain of the technologies owned or controlled by our operating subsidiaries obsolete and/or uneconomical.

Employees

As of December 31, ~~2007,~~2008, on a consolidated basis, ~~Acacia Research Corporation~~we had 4541 full-time employees. None of our subsidiaries are a party to any collective bargaining agreement. We consider our employee relations to be good.

Item 1A. RISK FACTORS

An investment in our stock involves a number of risks. Before making a decision to purchase our securities, you should carefully consider all of the risks described in this annual report. If any of the risks discussed in this annual report actually occur, our business, financial condition and results of operations could be materially adversely affected. If this were to occur, the trading price of our securities could decline significantly and you may lose all or part of your investment. ~~As used in this Form 10-K, “we,” “us” and “our” refer to Acacia Research Corporation and/or its wholly owned operating subsidiaries.~~ All intellectual property acquisition, development, licensing and enforcement activities are conducted solely by certain of ~~Acacia Research Corporation’s~~our wholly owned operating subsidiaries.

~~GENERAL RISKS~~

RISKS RELATED TO OUR BUSINESS

WE HAVE A HISTORY OF LOSSES AND WILL PROBABLY INCUR ADDITIONAL LOSSES IN THE FUTURE.

We have sustained substantial losses since our inception resulting in a consolidated net accumulated deficit, as disclosed in the accompanying consolidated financial statements of Acacia Research Corporation included in Part IV Item 15 of this report.inception. We may never become profitable, or if we do, we may never be able to sustain profitability. As of December 31, 2008, our accumulated deficit was $109.0 million. As of December 31, 2008, we had approximately $51.5 million in cash and cash equivalents along with investments and working capital of $42.6 million. We expect to incur significant legal, marketing, general and administrative expenses. As a result, it is more likely than not that we will incur losses for the foreseeable future.

~~BECAUSE WE HAVE SUSTAINED LOSSES SINCE OUR INCEPTION, WE CANNOT ASSURE THAT OUR OPERATIONS WILL BE PROFITABLE.~~

~~We commenced operations in 1993~~ However, we believe our current cash and ~~we have sustained substantial losses since our inception resulting in a net consolidated accumulated deficit, as disclosed in~~investments on hand will be sufficient to finance anticipated capital and operating requirements for at least the accompanying consolidated financial statements of Acacia Research Corporation included in Part IV Item 15 of this report. If we continue to incur operating losses in future periods, we may not have enough capital to expand our business and our operating subsidiary companies’ businesses in the future.next twelve months.

IF WE, OR OUR SUBSIDIARIES, ENCOUNTER UNFORESEEN DIFFICULTIES AND CANNOT OBTAIN ADDITIONAL FUNDING ON FAVORABLE TERMS, OUR BUSINESS MAY SUFFER.

~~Acacia Research Corporation's~~Our consolidated cash and cash equivalents along with ~~short-term~~ investments totaled ~~$51.4~~$51.5 million and ~~$45.0~~$51.4 million at December 31, ~~2007~~2008 and ~~2006,~~2007, respectively. To date, ~~Acacia Research Corporation has~~we have relied primarily upon selling of equity securities and payments from our licensees to generate the funds needed to finance our operations and the operations of ~~Acacia Research Corporation and~~ our operating subsidiaries.

We cannot assure you that we will not encounter unforeseen difficulties, including the outside influences identified below, that may deplete our capital resources more rapidly than anticipated. As a result, we and or our subsidiary companies may be required to obtain additional financing through bank borrowings, debt or equity financings or otherwise, which would require us to make additional investments or face a dilution of our equity interests. Any efforts to seek additional funds could be made through equity, debt or other external financings. Nevertheless, we cannot assure that additional funding will be available on favorable terms, if at all. If we fail to obtain additional funding when needed for our subsidiary companies and ourselves, we may not be able to execute our business plans and our business may suffer.

FAILURE TO EFFECTIVELY MANAGE OUR GROWTH COULD PLACE STRAINS ON OUR MANAGERIAL, OPERATIONAL AND FINANCIAL RESOURCES AND COULD ADVERSELY AFFECT OUR BUSINESS AND OPERATING RESULTS.

Our growth has placed, and is expected to continue to place, a strain on our managerial, operational and financial resources. Further, as our subsidiary companies’ businesses grow, we will be required to manage multiple relationships. Any further growth by us or our subsidiary companies or an increase in the number of our strategic relationships will increase this strain on our managerial, operational and financial resources. This strain may inhibit our ability to achieve the rapid execution necessary to successfully implement our business plan.

OUR FUTURE SUCCESS DEPENDS ON OUR ABILITY TO EXPAND OUR ORGANIZATION TO MATCH THE GROWTH OF OUR SUBSIDIARIES.

As our operating subsidiaries grow, the administrative demands upon ~~Acacia Research Corporation~~us and on our operating subsidiaries, will grow, and our success will depend upon our ability to meet those demands. These demands include increased accounting, management, legal services, staff support, and general office services. We may need to hire additional qualified personnel to meet these demands, the cost and quality of which is dependent in part upon market factors outside of our control. Further, we will need to effectively manage the training and growth of our staff to maintain an efficient and effective workforce, and our failure to do so could adversely affect our business and operating results.

~~THE AVAILABILITY OF SHARES FOR SALE IN THE FUTURE COULD REDUCE THE MARKET PRICE OF~~ OUR ~~COMMON STOCK.~~REVENUES WILL BE UNPREDICTABLE, AND THIS MAY HARM OUR FINANCIAL CONDITION.

InFrom January 2005 to present, certain of our operating subsidiaries have continued to execute our strategy in the ~~future, we may issue securities~~area of patent portfolio and patent portfolio rights acquisitions. Currently, on a consolidated basis, our operating subsidiaries own or control the rights to ~~raise cash for acquisitions.~~over 100 patent portfolios, which include U.S. patents and certain foreign counterparts, covering technologies used in a wide variety of industries. These acquisitions continue to expand and diversify our revenue generating opportunities. We ~~may also pay for interests in additional subsidiary companies by using a combination of~~believe that our cash and cash equivalent balances, anticipated cash flow from operations and other external sources of available credit, will be sufficient to meet our ~~common stock or just our common stock. We may also issue securities convertible into our common stock. Any of these events may dilute stockholders ownership interest in our company~~cash requirements through at least March 2010, and ~~have an adverse impact on~~for the ~~price~~foreseeable future. However, due to the nature of our ~~common stock.~~licensing business and uncertainties regarding the amount and timing of the receipt of license fees from potential infringers, stemming primarily from uncertainties regarding the outcome of enforcement actions, rates of adoption of our patented technologies, the growth rates of our existing licensees and other factors, we cannot currently predict the amount and timing of the receipt of license fee revenues with a sufficient degree of precision.

~~In addition, sales of~~As a ~~substantial amount of~~result, our ~~common stock in the public~~revenues may vary significantly from quarter to quarter, which could make our business difficult to manage and cause our quarterly results to be below market ~~or the perception that these sales may occur, could reduce~~expectations. If this happens, the market price of our common ~~stock. This could also impair our ability to raise additional capital through the sale of our securities.~~stock may decline significantly.

~~DELAWARE LAW~~OUR OPERATING SUBSIDIARIES DEPEND UPON RELATIONSHIPS WITH OTHERS TO PROVIDE TECHNOLOGY-BASED OPPORTUNITIES THAT CAN DEVELOP INTO PROFITABLE ROYALTY-BEARING LICENSES, AND ~~OUR CHARTER DOCUMENTS CONTAIN PROVISIONS THAT COULD DISCOURAGE~~IF IT IS UNABLE TO MAINTAIN AND GENERATE NEW RELATIONSHIPS, THEN IT MAY NOT BE ABLE TO SUSTAIN EXISTING LEVELS OF REVENUE OR ~~PREVENT A POTENTIAL TAKEOVER OF ACACIA RESEARCH CORPORATION THAT MIGHT OTHERWISE RESULT IN OUR STOCKHOLDERS RECEIVING A PREMIUM OVER THE MARKET PRICE OF THEIR SHARES.~~INCREASE REVENUE.

~~Provisions of Delaware law~~Neither we nor our operating subsidiaries invent new technologies or products but instead depend on the identification and ~~our certificate of incorporation and bylaws could make the following more difficult: the~~ acquisition of new patents and inventions through their relationships with inventors, universities, research institutions, and others. If our ~~company by means of a tender offer, proxy contest or otherwise,~~operating subsidiaries are unable to maintain those relationships and ~~the removal of incumbent officers~~continue to grow new relationships, then they may not be able to identify new technology-based opportunities for growth and ~~directors. These provisions include:~~

·	section 203 of the Delaware General Corporation Law, which prohibits a merger with a 15%-or-greater stockholder, such as a party that has completed a successful tender offer, until three years after that party became a 15%-or-greater stockholder;

·	~~amendment of our bylaws by the stockholders requires a two-thirds approval of the outstanding shares;~~

·	~~the authorization in our certificate of incorporation of undesignated preferred stock, which could be issued without stockholder approval in a manner designed to prevent or discourage a takeover;~~

provisions in our bylaws eliminating stockholders’ rights to call a special meeting of stockholders, which could make it more difficult for stockholders to wage a proxy contest for control of our board of directors or to vote to repeal any of the anti-takeover provisions contained in our certificate of incorporation and bylaws; and

·	~~the division of our board of directors into three classes with staggered terms for each class, which could make it more difficult for an outsider to gain control of our board of directors.~~

sustainable revenue.

~~Such potential obstacles to a takeover could adversely affect the ability of our stockholders to receive a premium price for their stock in the event another company wants to acquire us.~~

~~AS A RESULT~~We cannot be certain that current or new relationships will provide the volume or quality of technologies necessary to sustain our business. In some cases, universities and other technology sources may compete against us as they seek to develop and commercialize technologies. Universities may receive financing for basic research in exchange for the exclusive right to commercialize resulting inventions. These and other strategies may reduce the number of technology sources and potential clients to whom we can market our services. If we are unable to secure new sources of technology, it could have a material adverse effect on our operating results and financial condition.

THE SUCCESS OF OUR OPERATING SUBSIDIARIES DEPENDS IN PART UPON THEIR ABILITY TO RETAIN THE ~~REDEMPTION OF AR-COMBIMATRIX STOCK FOR THE COMMON STOCK OF COMBIMATRIX CORPORATION, ACACIA RESEARCH CORPORATION~~BEST LEGAL COUNSEL TO REPRESENT THEM IN PATENT ENFORCEMENT LITIGATION.

The success of our licensing business depends upon our operating subsidiaries’ ability to retain the best legal counsel to prosecute patent infringement litigation. As our operating subsidiaries’ patent enforcement actions increase, it will become more difficult to find the best legal counsel to handle all of our cases because many of the best law firms may have a conflict of interest that prevents its representation of our subsidiary companies.

OUR OPERATING SUBSIDIARIES, IN CERTAIN CIRCUMSTANCES, RELY ON REPRESENTATIONS, WARRANTIES AND OPINIONS MADE BY THIRD PARTIES, THAT IF DETERMINED TO BE FALSE OR INACCURATE, MAY ~~BE SUBJECT~~EXPOSE OUR OPERATING SUBSIDIARIES TO CERTAIN ~~TAX LIABILITY UNDER THE INTERNAL REVENUE CODE.~~ LIABILITIES THAT COULD BE MATERIAL.

~~Our distribution~~From time to time, our operating subsidiaries may rely upon representations and warranties made by third parties from whom certain of our operating subsidiaries acquired patents or the ~~common stock of CombiMatrix Corporation in the redemption will be tax-free~~exclusive rights to ~~Acacia Research Corporation if the distribution qualifies under Sections 368~~license and 355 of the Internal Revenue Code. If the split-off failed to qualify under Section 355 of the Internal Revenue Code, corporate tax would be payable by the consolidated group of which Acacia Research Corporation is the common parent, basedenforce patents. We also may rely upon the ~~difference between~~opinions of purported experts. In certain instances, we may not have the ~~aggregate fair market value of the assets of CombiMatrix Corporation’s business~~opportunity to independently investigate and ~~the adjusted tax bases of such business to Acacia Research Corporation prior to the redemption.~~

Acacia Research Corporation received a private letter ruling from the IRS to the effect that, among other things, the redemption would be tax free to Acacia Research Corporation and the holders of AR-Acacia Technologies stock and AR-CombiMatrix stock under Sections 368 and 355 of the Internal Revenue Code. The private letter ruling, while generally binding upon the IRS, was based upon factual representations and assumptions and commitments on our behalf with respect to future operations made in the ruling request. The IRS could modify or revoke the private letter ruling retroactively if the factual representations and assumptions in the request were materially incomplete or untrue,verify the facts upon which such representations, warranties, and opinions are made. By relying on these representations, warranties and opinions, our operating subsidiaries may be exposed to liabilities in connection with the ~~private letter ruling was based~~licensing and enforcement of certain patents and patent rights. It is difficult to predict the extent and nature of such liabilities which, in some instances, may be material.

IN CONNECTION WITH PATENT ENFORCEMENT ACTIONS CONDUCTED BY CERTAIN OF OUR SUBSIDIARIES, A COURT MAY RULE THAT OUR SUBSIDIARIES HAVE VIOLATED CERTAIN STATUTORY, REGULATORY, FEDERAL, LOCAL OR GOVERNING RULES OR STANDARDS, WHICH MAY EXPOSE US AND OUR OPERATING SUBSIDIARIES TO MATERIAL LIABILITIES, WHICH COULD MATERIALLY HARM OUR OPERATING RESULTS AND OUR FINANCIAL POSITION.

In connection with any of our patent enforcement actions, it is possible that a defendant may request and/or a court may rule that we have violated statutory authority, regulatory authority, federal rules, local court rules, or governing standards relating to the substantive or procedural aspects of such enforcement actions. In such event, a court may issue monetary sanctions against us or our operating subsidiaries or award attorney’s fees and/or expenses to a defendant(s), which could be material, and if required to be paid by us or our operating subsidiaries, could materially harm our operating results and our financial position.

OUR INVESTMENTS IN AUCTION RATE SECURITIES ARE SUBJECT TO RISKS, INCLUDING THE CONTINUED FAILURE OF FUTURE AUCTIONS, WHICH MAY CAUSE US TO INCUR LOSSES OR HAVE REDUCED LIQUIDITY.

At December 31, 2008, our investments in marketable securities include certain auction rate securities. Our auction rate securities are investment grade quality and were ~~materially different from~~in compliance with our investment policy when purchased. Historically, our auction rate securities were recorded at cost, which approximated their fair market value due to their variable interest rates, which typically reset every 7 to 35 days, despite the ~~facts~~long-term nature of their stated contractual maturities. The Dutch auction process that resets the applicable interest rate at predetermined calendar intervals is intended to provide liquidity to the holder of auction rate securities by matching buyers and sellers within a market context enabling the holder to gain immediate liquidity by selling such interests at par or rolling over their investment. If there is an imbalance between buyers and sellers the risk of a failed auction exists. Due to recent liquidity issues in the global credit and capital markets, these securities experienced several failed auctions since February 2008. In such case of a failure, the auction rate securities continue to pay interest, at the ~~time~~maximum rate, in accordance with their terms, however, we may not be able to access the par value of the ~~redemption,~~invested funds until a future auction of these investments is successful, the security is called by the issuer or ~~if we do not meet certain commitments made.~~

~~If the split-off failed to qualify under Section 355~~a buyer is found outside of the Internal Revenue Code, corporate tax, if any, would be payable by the consolidated group of which Acacia Research Corporation is the common parent, as described above. As such, the corporate level tax would be payable by Acacia Research Corporation. CombiMatrix Corporation has agreed however, to indemnify Acacia Research Corporation for this and certain other tax liabilities if they result from actions taken by CombiMatrix Corporation. Notwithstanding CombiMatrix Corporation’s agreement to indemnify us, under the Internal Revenue Code’s consolidated return regulations, each member of the Acacia Research Corporation consolidated group, including our company, will be severally liable for these tax liabilities. Further, we may be liable for additional taxes if Acacia Research Corporation takes certain actions within two years following the redemption, as more fully discussed in the immediately following risk factor. If we are found liable to the IRS for these liabilities, the resulting obligation could materially and adversely affect our financial condition, and we may be unable to recover on the indemnity from CombiMatrix Corporation.auction process.

FOLLOWING THE REDEMPTION OF AR-COMBIMATRIX STOCK FOR THE COMMON STOCK OF COMBIMATRIX CORPORATION, ACACIA RESEARCH CORPORATION MAY BE SUBJECT TO CERTAIN TAX LIABILITY UNDER THE INTERNAL REVENUE CODE FOR ACTIONS TAKEN BY EITHER OF THEM FOLLOWING THE REDEMPTION.

Even if the distribution qualifies under Section 368 and 355 of the Internal Revenue Code, it will be taxable to Acacia if Section 355(e) of the Internal Revenue Code applies to the distribution. Section 355(e) will apply if 50% or more of the AR-Acacia Technologies stock or CombiMatrix Corporation’s common stock, by vote or value, is acquired by one or more persons, other than the holders of AR-CombiMatrix stock who receive the common stock of CombiMatrix Corporation in the redemption, acting pursuant to a plan or a series of related transactions that includes the redemption. Any shares of the AR-Acacia Technologies stock, the AR-CombiMatrix stock or the common stock of CombiMatrix Corporation acquired directly or indirectly within two years before or after the redemption generally are presumed to be part of such a plan unless we can rebut that presumption. To prevent applicability of Section 355(e) or to otherwise prevent the distribution from failing to qualify under Section 355 of the Internal Revenue Code, CombiMatrix Corporation has agreed that, until two years after the redemption, it will not take any of the following actions unless prior to taking such action, it has obtained (and provided to us) a written opinion of tax counsel or a ruling from the Internal Revenue Service to the effect that such action will not cause the redemption to be taxable to us (collectively “Disqualifying Actions”):

~~merge or consolidate with another corporation;~~

~~liquidate or partially liquidate;~~

~~sell or transfer all or substantially all of its assets;~~

~~redeem or repurchase its stock (except in certain limited circumstances); or~~

~~take any other action which could reasonably be expected to cause Section 355(e) to apply to the distribution.~~

~~Further,~~At December 31, 2008, the par value of auction rate securities collateralized by student loan portfolios totaled $2.75 million. As a result of the liquidity issues associated with the failed auctions, we estimate that the fair value of these auction rate securities no longer approximates their par value. Due to the estimate that the market for these student loan collateralized instruments may take in excess of twelve months to fully recover, we have classified these investments as noncurrent in the accompanying December 31, 2008 consolidated balance sheet. In addition, as a result of our analysis of the estimated fair value of our student loan collateralized instruments, as described at Note 7 to the consolidated financial statements included elsewhere herein, we have recorded an other-than-temporary loss of $250,000 for our student loan collateralized instruments in the accompanying consolidated statement of operations and comprehensive income (loss) (hereinafter “consolidated statements of operations”) for the year ended December 31, 2008.

At December 31, 2008, we also held auction rate securities with a par value totaling $975,000, issued by high credit quality closed-end investment companies. Despite the reduction in liquidity resulting from the failure of auctions for these securities since February 2008, the issuers of these auction rate securities have redeemed, at par, approximately 66% of the securities held by us since February 2008, and have indicated that they continue to evaluate ways to provide additional liquidity to their auction rate security holders. Additionally, these securities continue to be AAA rated and the underlying funds continue to meet certain specified asset coverage tests required by the rating agencies, as well as the 200% asset coverage test with respect to auction rate securities set forth in the Investment Company Act of 1940, as amended. However, due to the impact of the reduced liquidity associated with these securities as of December 31, 2008, we recorded an other-than-temporary loss on these auction rate securities of $236,000 in the accompanying consolidated statement of operations for the year ended December 31, 2008, and have classified our auction rate securities issued by closed-end investment companies as noncurrent assets in the accompanying December 31, 2008 consolidated balance sheet.

The capital and credit markets have been experiencing extreme volatility and disruption for more than 12 months. In recent weeks, the volatility and disruption have reached unprecedented levels. In several cases, the markets have exerted downward pressure on stock prices and credit capacity for certain issuers. Given the deteriorating credit markets, and the sustained incidence of failure within the auction market since February 2008, there can be no assurance as to when we would be able to liquidate a particular issue. Furthermore, if ~~Acacia Research Corporation takes any Disqualifying Action,~~these market conditions were to persist despite our ability to hold such investments until maturity, we may be ~~subject~~required to record additional ~~tax liability. Many~~impairment charges in a future period. The systemic failure of future auctions for auction rate securities may result in a loss of liquidity, substantial impairment to our ~~competitors are not subject to similar restrictions and may issue their stock to~~investments, realization of substantial future losses, or a complete ~~acquisitions, expand their product offerings and speed~~loss of the ~~development of new technology. Therefore, these competitors~~investment in the long-term which may have a ~~competitive advantage over us. Substantial uncertainty exists~~material adverse effect on our business, results of operations, liquidity, and financial condition. Refer to Note 7 to our accompanying consolidated financial statements, included elsewhere herein, for additional information about our investments in auction rate securities and the ~~scope~~implementation of ~~Section 355(e), and we may have undertaken, may contemplate undertaking~~SFAS No. 157, “Fair Value Measurements,” or may otherwise undertake in the future transactions which may cause Section 355(e) to apply to the redemption notwithstanding our desire or intent to avoid application of Section 355(e). Accordingly, we cannot provide you any assurance that we will not be liable for taxes if Section 355(e) applies to the redemption.SFAS No.157.

RISKS RELATED TO OUR INDUSTRY

BECAUSE OUR BUSINESS OPERATIONS ARE SUBJECT TO MANY UNCONTROLLABLE OUTSIDE INFLUENCES, WE MAY NOT SUCCEED.

Our licensing and enforcement business operations are subject to numerous risks from outside influences, including the following:

·	New legislation, regulations or rules related to obtaining patents or enforcing patents could significantly increase our operating costs and decrease our revenue.

Our operating subsidiaries acquire patents with enforcement opportunities and are spending a significant amount of resources to enforce those patents. If new legislation, regulations or rules are implemented either by Congress, the ~~United States~~U.S. Patent and Trademark Office, or USPTO, or the courts that impact the patent application process, the patent enforcement process or the rights of patent holders, these changes could negatively affect our expenses and revenue. For example, new rules regarding the burden of proof in patent enforcement actions could significantly increase the cost of our enforcement actions, and new standards or limitations on liability for patent infringement could negatively impact our revenue derived from such enforcement actions. ~~While we are not aware that any such changes are likely to occur in the foreseeable future, we cannot assure you that such changes will not occur.~~

·	Trial judges and juries often find it difficult to understand complex patent enforcement litigation, and as a result, we may need to appeal adverse decisions by lower courts in order to successfully enforce our patents.

Trial judges and juries often find it difficult to understand complex patent enforcement litigation, and as a result, we may need to appeal adverse decisions by lower courts in order to successfully enforce our patents.

It is difficult to predict the outcome of patent enforcement litigation at the trial level. It is often difficult for juries and trial judges to understand complex, patented technologies, and as a result, there is a higher rate of successful appeals in patent enforcement litigation than more standard business litigation. Such appeals are expensive and time consuming, resulting in increased costs and delayed revenue. Although we diligently pursue enforcement litigation, we cannot predict with significant reliability the decisions made by juries and trial courts.

·	~~More patent applications are filed each year resulting in longer delays in getting patents issued by the United States Patent and Trademark Office.~~

More patent applications are filed each year resulting in longer delays in getting patents issued by the USPTO.

Certain of our operating subsidiaries hold and continue to acquire pending patents. We have identified a trend of increasing patent applications each year, which we believe is resulting in longer delays in obtaining approval of pending patent applications. The application delays could cause delays in recognizing revenue from these patents and could cause us to miss opportunities to license patents before other competing technologies are developed or introduced into the market. See the subheading “Competition is intense in the industries in which our subsidiaries do business and as a result, we may not be able to grow or maintain our market share for our technologies and patents,” below.

·	Federal courts are becoming more crowded, and as a result, patent enforcement litigation is taking longer.

Our patent enforcement actions are almost exclusively prosecuted in federal court. Federal trial courts that hear our patent enforcement actions also hear criminal cases. Criminal cases always take priority over our actions. As a result, it is difficult to predict the length of time it will take to complete an enforcement action. Moreover, we believe there is a trend in increasing numbers of civil lawsuits and criminal proceedings before federal judges, and as a result, we believe that the risk of delays in our patent enforcement actions will have a greater affect on our business in the future unless this trend changes.

·	~~Any reductions in the funding of the United States Patent and Trademark Office~~Any reductions in the funding of the USPTO could have an adverse impact on the cost of processing pending patent applications and the value of those pending patent applications.

The assets of our operating subsidiaries ~~consists~~consist of patent portfolios, including pending patent applications before the ~~U.S. Patent and Trademark Office (USPTO).~~USPTO. The value of our patent portfolios is dependent upon the issuance of patents in a timely manner, and any reductions in the funding of the USPTO could negatively impact the value of our assets. Further, reductions in funding from Congress could result in higher patent application filing and maintenance fees charged by the USPTO, causing an unexpected increase in our expenses.

Competition is intense in the industries in which our subsidiaries do business and as a result, we may not be able to grow or maintain our market share for our technologies and patents.

·	~~Competition is intense in the industries in which our subsidiaries do business and as a result, we may not be able to grow or maintain our market share for our technologies and patents.~~

We expect to encounter competition in the area of patent acquisition and enforcement as the number of companies entering this market is increasing. This includes competitors seeking to acquire the same or similar patents and technologies that we may seek to acquire. ~~Companies such as British Technology Group, Rembrandt Management Group, and~~Entities including Allied Security Trust, Altitude Capital Partners, Coller IP, Intellectual Ventures, ~~LLC are already~~Millennium Partners, Open Innovation Network, RPX Corporation and Rembrandt IP Management compete in ~~the business of~~ acquiring ~~the~~ rights to patents, ~~for the purpose of licensing and enforcement,~~ and we expect more ~~companies~~entities to enter the market. As new technological advances occur, many of our patented technologies may become obsolete before they are completely monetized. If we are unable to replace obsolete technologies with more technologically advanced patented technologies, then this obsolescence could have a negative effect on our ability to generate future revenues.

Our licensing business also competes with venture capital firms and various industry leaders for technology licensing opportunities. Many of these competitors may have more financial and human resources than our company. As we become more successful, 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 rely upon to generate future revenue.

·	~~Our patented technologies face uncertain market value.~~

Our patented technologies face uncertain market value.

Our operating subsidiaries have acquired patents and technologies that are at early stages of adoption in the commercial and consumer markets. Demand for some of these technologies is untested and is subject to fluctuation based upon the rate at which our licensees will adopt our patents and technologies in their products and services. Refer to the related risk factor below.

·	As patent enforcement litigation becomes more prevalent, it may become more difficult for us to voluntarily license our patents.

We believe that the more prevalent patent enforcement actions become, the more difficult it will be for us to voluntarily license our patents. As a result, we may need to increase the number of our patent enforcement actions to cause infringing companies to license the patent or pay damages for lost royalties. This may increase the risks associated with an investment in our company.

·	The foregoing outside influences may affect other risk factors described in this annual report.

Any one of the foregoing outside influences may cause our company to need additional financing to meet the challenges presented or to compensate for a loss in revenue, and we may not be able to obtain the needed financing. See the heading ~~“If~~“If we, or our subsidiaries, encounter unforeseen difficulties and cannot obtain additional funding on favorable terms, our business may ~~suffer”~~suffer” above.

~~WE MAY FAIL TO MEET MARKET EXPECTATIONS BECAUSE OF FLUCTUATIONS IN QUARTERLY OPERATING RESULTS, WHICH COULD CAUSE THE PRICE OF ACACIA RESEARCH-ACACIA TECHNOLOGIES COMMON STOCK TO DECLINE.~~

Our reported revenues and operating results have fluctuated in the past and may continue to fluctuate significantly from quarter to quarter in the future. It is possible that in future periods revenues could fall below the expectations of securities analysts or investors, which could cause the market price of our Acacia Research-Acacia Technologies common stock to decline. The following are among the factors that could cause our operating results to fluctuate significantly from period to period:

·	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 associated with a specific licensee;

·	~~the specific terms and conditions of agreements executed each period and the periods of infringement contemplated by the respective payments;~~

·	~~fluctuations in the total number of agreements executed;~~

·	~~fluctuations in the sales results or other royalty per unit activities of our licensees that impact the calculation of license fees due;~~

·	~~the timing of the receipt of periodic license fee payments and/or reports from licensees;~~

·	~~fluctuations in the net number of active licensees period to period;~~

·	~~costs related to acquisitions, alliances, licenses and other efforts to expand our operations;~~

·	~~the timing of payments under the terms of any customer or license agreements into which our operating subsidiaries may enter; and~~

·	~~expenses related to, and the results of, patent filings and other enforcement proceedings relating to intellectual property rights, as more fully described in this section.~~

~~OUR REVENUES WILL BE UNPREDICTABLE, AND THIS MAY HARM OUR FINANCIAL CONDITION.~~

Acacia Global Acquisition Corporation's acquisition of the assets of Global Patent Holdings, LLC in 2005, provided us with ownership of companies that control 27 patent portfolios, which include 120 U.S. patents and certain foreign counterparts. Rights to additional patent portfolios were acquired subsequent to the acquisition of the assets of Global Patent Holdings, bringing the current total number of patent portfolios controlled by Acacia Research Corporation’s operating subsidiaries to approximately 91, covering technologies used in a wide variety of industries. The acquisitions expand and diversify our revenue generating opportunities. We believe that our cash and cash equivalent balances, anticipated cash flow from operations and other external sources of available credit, will be sufficient to meet our cash requirements through at least March 2009, and for the foreseeable future. However, due to the nature of our licensing business and uncertainties regarding the amount and timing of the receipt of license fees from potential infringers, stemming primarily from uncertainties regarding the outcome of enforcement actions, rates of adoption of our patented technologies, the growth rates of our existing licensees and other factors, we cannot currently predict the amount and timing of the receipt of license fee revenues with a sufficient degree of precision.

As a result, our revenues may vary significantly from quarter to quarter, which could make our business difficult to manage and cause our quarterly results to be below market expectations. If this happens, the price of our Acacia Research-Acacia Technologies common stock may decline significantly.

OUR OPERATING SUBSIDIARIES DEPEND UPON RELATIONSHIPS WITH OTHERS TO PROVIDE TECHNOLOGY-BASED OPPORTUNITIES THAT CAN DEVELOP INTO PROFITABLE ROYALTY-BEARING LICENSES, AND IF IT IS UNABLE TO MAINTAIN AND GENERATE NEW RELATIONSHIPS, THEN IT MAY NOT BE ABLE TO SUSTAIN EXISTING LEVELS OF REVENUE OR INCREASE REVENUE.

Our operating subsidiaries do not invent new technologies or products; they depend on acquiring new patents and inventions through their relationships with inventors, universities, research institutions, and others. If our operating subsidiaries are unable to maintain those relationships and continue to grow new relationships, then they may not be able to identify new technology-based opportunities for growth and sustainable revenue. Further, because we rely upon acquiring technology from others, we cannot be certain that we will be able to obtain the volume and quality of available new technologies necessary to sustain our current or future growth. If we are unable to obtain the necessary volume and quality of new technologies, then we may need to reduce operations or revise our business model.

~~TECHNOLOGY COMPANY STOCK PRICES ARE ESPECIALLY VOLATILE, AND THIS VOLATILITY MAY DEPRESS THE PRICE OF OUR ACACIA RESEARCH-ACACIA TECHNOLOGIES COMMON STOCK.~~

The stock market has experienced significant price and volume fluctuations, and the market prices of technology companies have been highly volatile. We believe that various factors may cause the market price of our Acacia Research-Acacia Technologies common stock to fluctuate, perhaps substantially, including, among others, the following:

·	~~announcements of developments in our patent enforcement actions;~~

·	~~developments or disputes concerning our patents;~~

·	~~our or our competitors’ technological innovations;~~

·	~~developments in relationships with licensees;~~

·	~~variations in our quarterly operating results;~~

·	~~our failure to meet or exceed securities analysts’ expectations of our financial results; or~~

·	~~a change in financial estimates or securities analysts’ recommendations;~~

·	~~changes in management’s or securities analysts’ estimates of our financial performance;~~

·	~~changes in market valuations of similar companies;~~

·	~~announcements by us or our competitors of significant contracts, acquisitions, strategic partnerships, joint ventures, capital commitments, new technologies, or patents; and~~

·	~~failure to complete significant transactions.~~

For example, the Nasdaq Computer Index had a range of $1,008.96 - $1,353.94 during the 52-weeks ended December 31, 2007 and the Nasdaq Composite Index had a range of $1,108.49 - $2,892.36 over the same period. Over the same period, our Acacia Research-Acacia Technologies common stock fluctuated within a range of $8.42 - $17.92, all of which was experienced in the fourth quarter. We believe fluctuations in our stock price during this period could have been impacted by court rulings in our patent enforcement actions. Court rulings in patent enforcement actions are often difficult to understand, even when favorable or neutral to the value of our patents and our overall business, and we believe that investors in the market may overreact, causing fluctuations in our stock prices that may not accurately reflect the impact of court rulings on our business operations and assets.

In the past, companies that have experienced volatility in the market price of their stock have been the objects of securities class action litigation. If our Acacia Research-Acacia Technologies common stock was the object of securities class action litigation, it could result in substantial costs and a diversion of management’s attention and resources, which could materially harm our business and financial results.

THE MARKETS SERVED BY OUR OPERATING SUBSIDIARIES ARE SUBJECT TO RAPID TECHNOLOGICAL CHANGE, AND IF OUR OPERATING SUBSIDIARIES ARE UNABLE TO DEVELOP AND ACQUIRE NEW TECHNOLOGIES AND PATENTS, ITS REVENUES COULD STOP GROWING OR COULD DECLINE.

The markets served by our operating subsidiaries’ licensees frequently undergo transitions in which products rapidly incorporate new features and performance standards on an industry-wide basis. Products for communications applications, high-speed computing applications, as well as other applications covered by our operating subsidiaries’ intellectual property, are based on continually evolving industry standards. Our ability to compete in the future will, however, depend on our ability to identify and ensure compliance with evolving industry standards. This will require our continued efforts and success of acquiring new patent portfolios with licensing and enforcement opportunities. However, we expect to have sufficient liquidity and capital resources for the foreseeable future in order to maintain the level of acquisitions we believe we need to keep pace with these technological advances. However, outside influences may cause the need for greater liquidity and capital resources than expected, as described under the caption “Because our business operations are subject to many uncontrollable outside influences, we may not succeed” above.

THE ~~SUCCESS~~RECENT FINANCIAL CRISIS AND CURRENT UNCERTAINTY IN GLOBAL ECONOMIC CONDITIONS COULD NEGATIVELY AFFECT OUR BUSINESS, RESULTS OF OPERATIONS, AND FINANCIAL CONDITION

Our revenue-generating opportunities depend on the use of our patented technologies by existing and prospective licensees, the overall demand for the products and services of our licensees, and on the overall economic and financial health of our licensees. The recent financial crisis affecting the banking system and financial markets and the current uncertainty in global economic conditions have resulted in a tightening in the credit markets, a low level of liquidity in many financial markets, and extreme volatility in the credit, equity and fixed income markets. If the current worldwide economic downturn continues, many of our licensees’ customers, which may rely on credit financing, may delay or reduce their purchases of our licensees’ products and services. In addition, the use or adoption of our patented technologies is often based on current and forecasted demand for our licensees’ products and services in the marketplace and may require companies to make significant initial commitments of capital and other resources. If the negative conditions in the global credit markets delay or prevent our licensees’ and their customers’ access to credit, overall consumer spending on the products and services of our licensees may decrease and the adoption or use of our patented technologies may slow, respectively. Further, if the markets in which our licensees’ participate experience further economic downturns, as well as a slow recovery period, this could negatively impact our licensees’ long-term sales and revenue generation, margins and operating expenses, which could impact the magnitude of revenues generated or projected to be generated by our licensees, which could have a material impact on our business, license fee generating opportunities, operating results and financial condition.

In addition, we have significant patent related intangible assets recorded on our consolidated balance sheet. We will continue to evaluate the recoverability of the carrying amount of our patent related intangible assets on an ongoing basis, and we may incur substantial impairment charges, which would adversely affect our consolidated financial results. There can be no assurance that the outcome of such reviews in the future will not result in substantial impairment charges. Impairment assessment inherently involves judgment as to assumptions about expected future cash flows and the impact of market conditions on those assumptions. Future events and changing market conditions may impact our assumptions as to prices, costs, holding periods or other factors that may result in changes in our estimates of future cash flows. Although we believe the assumptions we used in testing for impairment are reasonable, significant changes in any one of our assumptions could produce a significantly different result.

RISKS RELATED TO OUR COMMON STOCK

THE AVAILABILITY OF SHARES FOR SALE IN THE FUTURE COULD REDUCE THE MARKET PRICE OF OUR ~~OPERATING SUBSIDIARIES DEPENDS IN PART UPON THEIR ABILITY TO RETAIN THE BEST LEGAL COUNSEL TO REPRESENT THEM IN PATENT ENFORCEMENT LITIGATION.~~COMMON STOCK.

~~The success~~In the future, we may issue securities to raise cash for operations and or acquisitions. We may also pay for interests in additional subsidiary companies by using a combination of cash and our common stock or just our common stock. We may also issue securities convertible into our common stock. Any of these events may dilute stockholders ownership interest in our company and have an adverse impact on the price of our ~~licensing business depends upon~~common stock.

In addition, sales of a substantial amount of our ~~operating subsidiaries’~~common stock in the public market, or the perception that these sales may occur, could reduce the market price of our common stock. This could also impair our ability to ~~retain~~raise additional capital through the best legal counsel to prosecute patent infringement litigation. As our operating subsidiaries’ patent enforcement actions increase, it will become more difficult to find the best legal counsel to handle allsale of our ~~cases because many~~securities.

DELAWARE LAW AND OUR CHARTER DOCUMENTS CONTAIN PROVISIONS THAT COULD DISCOURAGE OR PREVENT A POTENTIAL TAKEOVER OF OUR COMPANY THAT MIGHT OTHERWISE RESULT IN OUR STOCKHOLDERS RECEIVING A PREMIUM OVER THE MARKET PRICE OF THEIR SHARES.

Provisions of Delaware law and our certificate of incorporation and bylaws could make the ~~best law firms may have a conflict of interest that prevents its representation~~following more difficult: the acquisition of our ~~subsidiary companies.~~

OUR OPERATING SUBSIDIARIES, IN CERTAIN CIRCUMSTANCES, RELY ON REPRESENTATIONS, WARRANTIES AND OPINIONS MADE BY THIRD PARTIES, THAT IF DETERMINED TO BE FALSE OR INACCURATE, MAY EXPOSE CERTAIN OF OUR OPERATING SUBSIDIARIES TO CERTAIN LIABILITIES THAT COULD BE MATERIAL.company by means of a tender offer, proxy contest or otherwise, and the removal of incumbent officers and directors. These provisions include:

~~From time~~

●	Section 203 of the Delaware General Corporation Law, which prohibits a merger with a 15%-or-greater stockholder, such as a party that has completed a successful tender offer, until three years after that party became a 15%-or-greater stockholder;

●	amendment of our bylaws by the stockholders requires a two-thirds approval of the outstanding shares;

●	the authorization in our certificate of incorporation of undesignated preferred stock, which could be issued without stockholder approval in a manner designed to prevent or discourage a takeover;

●

●	the division of our board of directors into three classes with staggered terms for each class, which could make it more difficult for an outsider to gain control of our board of directors.

Such potential obstacles to ~~time, our operating subsidiaries may rely upon representations and warranties made by third parties from whom certain~~a takeover could adversely affect the ability of our ~~operating subsidiaries acquired patents or~~stockholders to receive a premium price for their stock in the ~~exclusive rights~~event another company wants to license and enforce patents. We also may rely upon the opinions of purported experts. In certain instances, we may not have the opportunity to independently investigate and verify the facts upon which such representations, warranties, and opinions are made. By relying on these representations, warranties and opinions, our operating subsidiaries may be exposed to liabilities in connection with the licensing and enforcement of certain patents and patent rights. It is difficult to predict the extent and nature of such liabilities which, in some instances, may be material.acquire us.

AS A RESULT OF THE REDEMPTION OF ACACIA RESEARCH-COMBIMATRIX COMMON STOCK FOR THE COMMON STOCK OF COMBIMATRIX CORPORATION, WE MAY BE SUBJECT TO CERTAIN TAX LIABILITY UNDER THE INTERNAL REVENUE CODE.

Our distribution of the common stock of CombiMatrix in the Split-Off Transaction will be tax-free to us if the distribution qualifies under Sections 368 and 355 of the Internal Revenue Code of 1986, as amended, or the Code. If the Split-Off Transaction fails to qualify under Section 355 of the Code, corporate tax would be payable by the consolidated group as of the date of the Split-Off Transaction, of which we are the common parent, based upon the difference between the aggregate fair market value of the assets of CombiMatrix’s business and the adjusted tax bases of such business to us prior to the redemption.

We received a private letter ruling from the Internal Revenue Service, or the IRS, to the effect that, among other things, the redemption would be tax free to us and the holders of Acacia Research-Acacia Technologies common stock and Acacia Research-CombiMatrix common stock under Sections 368 and 355 of the Code. The private letter ruling, while generally binding upon the IRS, was based upon factual representations and assumptions and commitments on our behalf with respect to future operations made in the ruling request. The IRS could modify or revoke the private letter ruling retroactively if the factual representations and assumptions in the request were materially incomplete or untrue, the facts upon which the private letter ruling was based were materially different from the facts at the time of the redemption, or if we do not comply with certain commitments made.

If the Split-Off Transaction fails to qualify under Section 355 of the Code, corporate tax, if any, would be payable by the consolidated group of which we are the common parent, as described above. As such, the corporate level tax would be payable by us. CombiMatrix has agreed however, to indemnify us for this and certain other tax liabilities if they result from actions taken by CombiMatrix. Notwithstanding CombiMatrix’s agreement to indemnify us, under the Code’s consolidated return regulations, each member of our consolidated group, including our company, will be severally liable for these tax liabilities. Further, we may be liable for additional taxes if we take certain actions within two years following the redemption, as more fully discussed in the immediately following risk factor. If we are found liable to the IRS for these liabilities, the resulting obligation could materially and adversely affect our financial condition, and we may be unable to recover on the indemnity from CombiMatrix.

FOLLOWING THE REDEMPTION OF ACACIA RESEARCH-COMBIMATRIX COMMON STOCK FOR THE COMMON STOCK OF COMBIMATRIX, WE MAY BE SUBJECT TO CERTAIN TAX LIABILITIES UNDER THE INTERNAL REVENUE CODE FOR ACTIONS TAKEN BY US OR COMBIMATRIX FOLLOWING THE REDEMPTION.

Even if the distribution qualifies under Section 368 and 355 of the Code, it will be taxable to us if Section 355(e) of the Code applies to the distribution. Section 355(e) will apply if 50% or more of our common stock or CombiMatrix’s common stock, by vote or value, is acquired by one or more persons, other than the holders of Acacia Research-CombiMatrix common stock who receive the common stock of CombiMatrix in the redemption, acting pursuant to a plan or a series of related transactions that includes the redemption. Any shares of our common stock, the Acacia Research-CombiMatrix stock or the common stock of CombiMatrix acquired directly or indirectly within two years before or after the redemption generally are presumed to be part of such a plan unless we can rebut that presumption. To prevent applicability of Section 355(e) or to otherwise prevent the distribution from failing to qualify under Section 355 of the Code, CombiMatrix has agreed that, until two years after the redemption, it will not take any of the following actions unless prior to taking such action, it has obtained, and provided to us, a written opinion of tax counsel or a ruling from the IRS to the effect that such action will not cause the redemption to be taxable to us, which we refer to in this report collectively as Disqualifying Actions:

●	merge or consolidate with another corporation;

●	liquidate or partially liquidate;

●	sell or transfer all or substantially all of its assets;

●	redeem or repurchase its stock (except in certain limited circumstances); or

●	take any other action which could reasonably be expected to cause Section 355(e) to apply to the distribution.

Further, if we take any Disqualifying Action, we may be subject to additional tax liability. Many of our competitors are not subject to similar restrictions and may issue their stock to complete acquisitions, expand their product offerings and speed the development of new technology. Therefore, these competitors may have a competitive advantage over us. Substantial uncertainty exists on the scope of Section 355(e), and we may have undertaken, may contemplate undertaking or may otherwise undertake in the future transactions which may cause Section 355(e) to apply to the redemption notwithstanding our desire or intent to avoid application of Section 355(e). Accordingly, we cannot provide you any assurance that we will not be liable for taxes if Section 355(e) applies to the redemption.

WE MAY FAIL TO MEET MARKET EXPECTATIONS BECAUSE OF FLUCTUATIONS IN ~~CONNECTION WITH PATENT ENFORCEMENT ACTIONS CONDUCTED BY CERTAIN~~QUARTERLY OPERATING RESULTS, WHICH COULD CAUSE THE PRICE OF OUR ~~SUBSIDIARIES, A COURT~~COMMON STOCK TO DECLINE.

Our reported revenues and operating results have fluctuated in the past and may continue to fluctuate significantly from quarter to quarter in the future. It is possible that in future periods, revenues could fall below the expectations of securities analysts or investors, which could cause the market price of our common stock to decline. The following are among the factors that could cause our operating results to fluctuate significantly from period to period:

●	the dollar amount of agreements executed in each period, which is primarily driven by the nature and characteristics of the technology being licensed and the magnitude of infringement associated with a specific licensee;

●	the specific terms and conditions of agreements executed in each period and the periods of infringement contemplated by the respective payments;

●	fluctuations in the total number of agreements executed;

●	fluctuations in the sales results or other royalty-per-unit activities of our licensees that impact the calculation of license fees due;

●	the timing of the receipt of periodic license fee payments and/or reports from licensees;

●	fluctuations in the net number of active licensees period to period;

●	costs related to acquisitions, alliances, licenses and other efforts to expand our operations;

●	the timing of payments under the terms of any customer or license agreements into which our operating subsidiaries may enter; and

●	expenses related to, and the timing and results of, patent filings and other enforcement proceedings relating to intellectual property rights, as more fully described in this section.

TECHNOLOGY COMPANY STOCK PRICES ARE ESPECIALLY VOLATILE, AND THIS VOLATILITY MAY ~~RULE THAT~~DEPRESS THE PRICE OF OUR SUBSIDIARIES HAVE VIOLATED CERTAIN STATUTORY, REGULATORY, FEDERAL, LOCAL OR GOVERNING RULES OR STANDARDS, WHICH MAY EXPOSE US AND OUR OPERATING SUBSIDIARIES TO MATERIAL LIABILITIES, WHICH COULD MATERIALLY HARM OUR OPERATING RESULTS AND OUR FINANCIAL POSITION.COMMON STOCK.

The stock market has experienced significant price and volume fluctuations, and the market prices of technology companies have been highly volatile. We believe that various factors may cause the market price of our common stock to fluctuate, perhaps substantially, including, among others, the following:

●	announcements of developments in our patent enforcement actions;

●	developments or disputes concerning our patents;

●	our or our competitors’ technological innovations;

●	developments in relationships with licensees;

●	variations in our quarterly operating results;

●	our failure to meet or exceed securities analysts’ expectations of our financial results;

●	a change in financial estimates or securities analysts’ recommendations;

●	changes in management’s or securities analysts’ estimates of our financial performance;

●	changes in market valuations of similar companies;

●	announcements by us or our competitors of significant contracts, acquisitions, strategic partnerships, joint ventures, capital commitments, new technologies, or patents; and

●	failure to complete significant transactions.

For example, the NASDAQ Computer Index had a range of $582.76 - $1,288.12 during the 52-weeks ended December 31, 2008 and the NASDAQ Composite Index had a range of $1,295.48 - $2,661.50 over the same period. Over the same period, our common stock fluctuated within a range of $1.87 - $9.30.

The financial crisis affecting the banking system and financial markets and the current uncertainty in global economic conditions, which began in late 2007 and continued throughout 2008, have resulted in a tightening in the credit markets, a low level of liquidity in many financial markets, and extreme volatility in the credit, equity and fixed income markets. As noted above, our stock price, like many other stocks, has decreased substantially recently and if investors have concerns that our business, operating results and financial condition will be negatively impacted by a continuing worldwide economic downturn, our stock price could further decrease.

In ~~connection with any of~~addition, we believe that fluctuations in our stock price during applicable periods can also be impacted by court rulings and or other developments in our patent enforcement actions. Court rulings in patent enforcement actions ~~it is possible that a defendant may request and/~~are often difficult to understand, even when favorable or ~~a court may rule that we have violated statutory authority, regulatory authority, federal rules, local court rules, or governing standards relating~~neutral to the ~~substantive or procedural aspects~~value of ~~such enforcement actions.~~ our patents and our overall business, and we believe that investors in the market may overreact, causing fluctuations in our stock prices that may not accurately reflect the impact of court rulings on our business operations and assets.

In ~~such event,~~the past, companies that have experienced volatility in the market price of their stock have been the objects of securities class action litigation. If our common stock was the object of securities class action litigation, it could result in substantial costs and a ~~court may issue monetary sanctions against us or our operating subsidiaries or award attorney’s fees and/or expenses to a defendant(s),~~diversion of management’s attention and resources, which ~~could be material, and if required to be paid by us or our operating subsidiaries,~~ could materially harm our ~~operating results~~business and ~~our~~ financial ~~position.~~

~~OUR INVESTMENTS IN AUCTION RATE SECURITIES ARE SUBJECT TO RISKS, INCLUDING THE CONTINUED FAILURE OF FUTURE AUCTIONS, WHICH MAY CAUSE US TO INCUR LOSSES OR HAVE REDUCED LIQUIDITY.~~results.

We invest our cash balances in high-quality issuers and limit the amount of credit exposure to any one issuer other than the United States government and its agencies. At December 31, 2007, our investments in marketable securities consist of United States Government and Government Agency Bonds, and auction rate securities. Our auction rate securities are investment grade quality and are in compliance with our investment policy as of the end of 2007. We believe that the fair value of these investments continue to approximate their par value; however, we did experience failed auctions with certain of our issues in February 2008. Given the deteriorating credit markets, and the increased incidence of failure within the auction market in February 2008, there can be no assurance as to when we would be able to liquidate a particular issue. In such case of a failure, the auction rate securities continue to pay interest in accordance with their terms; however, we may not be able to access the par value of the invested funds until a future auction of these investments is successful, the security is called by the issuer or a buyer is found outside of the auction process. Furthermore, if this situation were to persist despite our ability to hold such investments until maturity, we may be required to record an impairment charge in a future period. The systemic failure of future auctions for auction rate securities may result in a loss of liquidity, substantial impairment to our investments, realization of substantial future losses, or a complete loss of the investment in the long-term which may have a material adverse effect on our business, results of operations, liquidity, and financial condition. See Note 2 of our Notes to Consolidated Financial Statements for additional information about our investments in marketable securities.

Item 1B. UNRESOLVED STAFF COMMENTS

None.

Item 2. PROPERTIES

~~Acacia Research Corporation leases~~We lease approximately 18,302 square feet of office space in Newport Beach, California, under a lease agreement that expires in February 2012. Presently, we are not seeking any additional facilities. We believe that our facilities are adequate, suitable and of sufficient capacity to support our immediate needs.

Item 3. LEGAL PROCEEDINGS

In the ordinary course of business, we are the subject of, or party to, various pending or threatened legal actions, including various counterclaims in connection with our intellectual property enforcement activities. We believe that any liability arising from these actions will not have a material adverse effect on our consolidated financial position, results of operations or cash flows.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

1316

PART II

Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

~~Recent Market Prices~~Price Range of Common Stock

Prior to the Split-Off Transaction described above, we had two classes of common stock outstanding, our Acacia ~~Research Corporation’s AR-Acacia~~Research-Acacia Technologies common stock and ~~AR-CombiMatrix~~our Acacia Research-CombiMatrix common stock. Our Acacia Research-Acacia Technologies common stock was intended to reflect separately the performance of our intellectual property licensing business. Our Acacia Research-CombiMatrix common stock was intended to reflect separately the performance of our life science business, referred to as the CombiMatrix group, which was disposed of in connection with the Split-Off Transaction.

As a result of the Split-Off Transaction, all outstanding shares of Acacia Research-CombiMatrix common stock were redeemed, and all rights of holders of Acacia Research-CombiMatrix common stock ceased as of August 15, 2007, except for the right, upon the surrender to the exchange agent of shares of Acacia Research-CombiMatrix common stock, to receive new shares of CombiMatrix common stock. As a result of the consummation of the Split-Off Transaction, our only class of common stock outstanding is our common stock.

Our common stock commenced trading on ~~the Nasdaq Stock~~The NASDAQ Global Market on December 16, 2002, under the ~~symbols “ACTG” and “CBMX,~~symbol “ACTG.” ~~respectively.~~ Prior to December 16, 2002, ~~Acacia Research Corporation’s~~our only class of common stock began trading under the symbol “ACRI” on the NASDAQ National Market System on July 8, 1996.

As a result of the Split-off Transaction described above, all outstanding shares of AR-CombiMatrix stock were redeemed, and hence, all rights of holders of AR-CombiMatrix stock ceased as of the Redemption Date (August 15, 2007), except for the right, upon the surrender to the exchange agent of shares of AR-CombiMatrix stock, to receive new shares of CombiMatrix Corporation stock pursuant to the exchange ratio described above. Subsequent to the consummation of the Split-off Transaction, Acacia Research Corporation’s only class of common stock outstanding is its AR-Acacia Technologies stock.

Prior to the Split-off Transaction, Acacia Research Corporation had two classes of common stock outstanding, its AR-Acacia Technologies stock and its AR-CombiMatrix stock. AR-Acacia Technologies stock was intended to reflect separately the performance of Acacia Research Corporation’s “Acacia Technologies group.” AR-CombiMatrix stock was intended to reflect separately the performance of Acacia Research Corporation’s “CombiMatrix group.” Although the AR-Acacia Technologies stock and the AR-CombiMatrix stock were intended to reflect the performance of our different business groups, they were both classes of common stock of Acacia Research Corporation and were not stock issued by the respective groups. As a result of the Split-off Transaction, the CombiMatrix group is no longer a business group of Acacia Research Corporation.

The markets for securities such as our common stock have historically experienced significant price and volume fluctuations during certain periods. These broad market fluctuations and other factors, such as new product developments and trends in our industry and the investment markets generally, as well as economic conditions and quarterly variations in the results of our enforcement activities and our results of operations, may adversely affect the market price of our common stock.

The high and low bid prices for our ~~two classes of~~ common stock as reported by The NASDAQ Global Market for the periods indicated are shown in the table below. Such prices are inter-dealer prices without retail markups, markdowns or commissions and may not necessarily represent actual transactions.

2007

2006

Fourth Quarter

Third Quarter

Second Quarter

First
Quarter

Fourth Quarter

Third Quarter

Second Quarter

First
Quarter

Acacia Research-Acacia Technologies stock:
High                                            $ 17.92 $ 16.75 $ 16.84 $ 16.56 $ 15.58 $ 14.95 $ 14.65 $ 9.00
Low                                            $ 8.42 $ 10.87 $ 12.76 $ 12.23 $ 11.05 $ 9.31 $ 8.85 $ 6.65

Acacia Research-CombiMatrix stock(1):

High                                            N/A $ 0.74 $ 0.81 $ 1.85 $ 1.07 $ 1.68 $ 2.75 $ 2.90
Low                                            N/A $ 0.57 $ 0.50 $ 0.58 $ 0.70 $ 0.96 $ 1.45 $ 1.34

~~____________________________~~

~~1) Reflects prices of AR-CombiMatrix stock through close of trading on August 14, 2007, immediately prior to the Redemption.~~

	2008								2007
	Fourth Quarter		Third Quarter		Second Quarter		First Quarter		Fourth Quarter		Third Quarter		Second Quarter		First Quarter

High	$	3.18	$	5.20	$	6.70	$	9.30	$	17.92	$	16.75	$	16.84	$	16.56
Low	$	1.87	$	2.98	$	4.20	$	4.58	$	8.42	$	10.87	$	12.76	$	12.23

STOCK PRICE PERFORMANCE GRAPH

~~This~~The following stock price performance graph shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, ~~(the “Exchange Act”)~~or the Exchange Act, or otherwise subject to the liabilities under that Section and shall not be deemed to be incorporated by reference into any ~~filing~~ of ~~Acacia Research Corporation~~our filings under the Securities Act of 1933, as amended.

The Stock Performance Graph depicted below compares the yearly change in ~~Acacia Research Corporation’s~~our cumulative total stockholder return for the last five fiscal years with the cumulative total return of ~~the Nasdaq~~The NASDAQ Stock Market (U.S.) Composite ~~Index and the Nasdaq Biotech~~ Index.

2003 2004 2005 2006 2007

AR-Acacia Technologies stock $ 226 $ 220 $ 286 $ 555 $ 373
AR-CombiMatrix stock                                            $ 92 $ 109 $ 38 $ 22 $ 16 *
Nasdaq Composite Index                                            $ 150 $ 163 $ 165 $ 181 $ 199
Nasdaq Biotech Index                                            $ 146 $ 155 $ 159 $ 161 $ 168

~~____________________________~~

*Based on the closing trading price of AR-CombiMatrix stock on August 14, 2007, immediately prior to the Redemption.

	2004	2005	2006	2007	2008

Acacia Research Corporation common stock	$97	$127	$246	$165	$56
Nasdaq Composite Index	$109	$110	$121	$132	$79

The graph covers the period from December 31, ~~2002~~2003 to December 31, ~~2007, except the share price of AR-CombiMatrix stock in 2007 is measured as of August 14, 2007.~~2008. Cumulative total returns are calculated assuming that $100 was invested on December 31, ~~2002,~~2003, in ~~each class of Acacia Research Corporation’s~~our common stock, ~~outstanding as of December 31, 2002,~~ and in ~~each index,~~the NASDAQ Composite Index, and that all dividends, if any, were reinvested. Refer to ~~Acacia Research Corporation’s~~our Dividend Policy below. Stockholder returns over the indicated period should not be considered indicative of future stock prices or shareholder returns.

On February ~~25, 2008,~~23, 2009, there were approximately ~~114~~116 owners of record of ~~Acacia Research Corporation~~our common stock. The majority of the outstanding shares of ~~Acacia Research Corporation~~our common stock are held by a nominee holder on behalf of an indeterminable number of ultimate beneficial owners.

Dividend Policy

To date, we have not declared or paid any cash dividends with respect to our ~~capital~~common stock, and the current policy of the board of directors is to retain earnings, if any, to provide for our growth and the growth of ~~Acacia Research Corporation and~~ our operating subsidiaries. Consequently, we do not expect to pay any cash dividends in the foreseeable future. Further, there can be no assurance that our proposed operations will generate revenues and cash flow needed to declare a cash dividend or that we will have legally available funds to pay dividends.

1518

Equity Compensation Plan Information

The following table provides information with respect to ~~Acacia Research Corporation’s~~shares of our common ~~shares~~stock issuable under our equity compensation plans as of December 31, ~~2007:~~2008:

Plan Category	(a) Number of securities to be issued upon exercise of outstanding options		(b) Weighted-average exercise price of outstanding options		(c) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
Equity compensation plans approved by security holders
2002 Acacia Technologies Stock Incentive Plan(1)		3,606,000		$5.41		1,678,000
2007 Acacia Technologies Stock Incentive Plan(2)		50,000		$16.01		130,000
Subtotal		3,656,000		$5.55		1,808,000
Equity compensation plans not approved by security holders(3)
		N/A		N/A		N/A
Total		3,656,000		$5.55		1,808,000

~~The~~Split-Off Transaction, our only business is our intellectual property ~~acquisition, development,~~ licensing ~~and enforcement business conducted by Acacia Research Corporation’s operating subsidiaries, is described more fully in Item 1. “Business,” of this report.~~business.

Overview

Our operating activities during 2008, 2007 ~~2006~~ and ~~2005,~~2006, were principally focused on the continued development, licensing and enforcement of the patent portfolios owned or controlled by our operating subsidiaries, including the continued pursuit of multiple ongoing technology licensing and enforcement programs and the development and commencement of new technology licensing and enforcement programs. In addition, we continued our focus on business development, including the acquisition of several additional patent portfolios by certain of our operating subsidiaries and the continued pursuit of additional opportunities to partner with patent owners and provide our unique intellectual property licensing, development and enforcement services.

~~License~~We recognized license fee revenues ~~recognized~~of $48.2 million in 2008, an 8% decrease compared to 2007 ~~totaled~~license fee revenues of $52.6 ~~million, representing a 51% increase over revenues recognized in 2006, which totaled $34.8~~ million, and a ~~greater than 100%~~38% increase ~~over revenues recognized in 2005, which totaled $19.6 million. The increase in~~compared to 2006 license fee revenues ~~in 2007 and 2006 reflects the impact~~ of ~~the increase in patent portfolios owned or controlled by~~$34.8 million.

Revenues for 2008 included license fees from 80 new licensing agreements covering 30 of our ~~operating subsidiaries, and the increase in the number of patent~~technology licensing and enforcement programs, ~~launched and generating revenues since the end of 2005.~~

~~Revenues for 2007 included license fees from~~as compared to 91 new licensing agreements covering 16 of our technology licensing and enforcement programs ~~as compared to~~in 2007 and 72 new licensing agreements covering 14 of our technology licensing and enforcement programs in ~~2006 and 83 new licensing agreements covering 12 of our technology licensing and enforcement programs in 2005.~~2006. On a consolidated basis, our operating subsidiaries generated licensing revenues from 820 new technology licensing and enforcement programs during ~~2007,~~2008, as compared to 8 new programs in 2007 and 7 new programs in ~~2006 and 11 new programs in 2005. To date, on a consolidated basis,~~2006. As of December 31, 2008, we have generated revenues from 2848 technology licensing and enforcement ~~programs.~~programs, as compared to 28 programs as of December 31, 2007 and 20 programs as of December 31, 2006.

License fee revenues for ~~2007~~2008 included fees from the licensing of our ~~Color Correction for Video Graphics Systems technology,~~ DMT® technology, Audio/Video Enhancement and Synchronization technology, ~~Audio Communications Fraud Detection~~Image Resolution Enhancement technology, Credit Card Fraud Protection ~~technology, Electronic Address List Management technology, Image Resolution Enhancement technology, Pop-Up Internet Advertising~~ technology, Portable Storage Devices with Links technology, ~~Multi-dimensional Bar Codes technology, Product Activation technology, Rule Based~~Rule-Based Monitoring technology, ~~Spreadsheet Automation~~Electronic Address List Management technology, Telematics technology, Medical Image Stabilization technology, Storage technology, Ecommerce Pricing technology, Location Based Services technology, File Locking in Shared Storage Networks technology, Audio Communications Fraud Detection technology, Picture Archiving & Communications System technology, Remote Management of Imaging Devices technology, Projector technology, Electronic Message Advertising technology, Wireless Traffic Information technology, Pop-up Internet Advertising technology, High Quality Image Processing technology, Vehicle ~~Magnetic Braking~~Anti-Theft Parking Systems technology, Online Auction Guarantee technology, Web Personalization technology, Vehicle maintenance technology, Physical Access Control technology, High Resolution Optics technology, Software License Management technology, Authorized Spending Accounts technology and ~~Virtual Computer Workspaces~~Video Editing technology licensing programs.

1922

~~Management measures~~Our revenues historically have fluctuated quarterly based on the number of patented technology portfolios owned or controlled by our operating subsidiaries, the timing and ~~assesses~~results of patent filings and other enforcement proceedings relating to our intellectual property rights, the number of active licensing programs, and the relative maturity of active licensing programs during the applicable periods. In addition, revenues fluctuate based on 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 associated with a specific licensee, the specific terms and conditions of agreements executed each period and the periods of infringement contemplated by the respective payments, fluctuations in the total number of agreements executed, fluctuations in the sales results or other royalty per unit activities of our licensees that impact the calculation of license fees due, the timing of the receipt of periodic license fee payments and/or reports from licensees, and fluctuations in the net number of active licensees period to period.

We measure and assess the performance and growth of ~~the~~our patent licensing and enforcement business conducted by our operating subsidiaries based on consolidated license fee revenues recognized across all of our technology licensing and enforcement programs on a trailing twelve-month basis. Trailing twelve-month revenues totaled $48.2 million as of December 31, 2008, as compared to $42.0 million as of September 30, 2008, $37.7 million as of June 30, 2008, $36.5 million as of March 31, 2008, $52.6 million as of December 31, 2007 ~~as compared to $47.9 million as of September 30, 2007, $46.8 million as of June 30, 2007, $55.3 million as of March 31, 2007,~~and $34.8 million as of December 31, ~~2006 and $19.6 million as of December 31, 2005.~~2006.

Operating expenses increased during ~~2007 and 2006,~~2008, as compared to ~~2005,~~2007, and during 2007, as compared to 2006, due primarily to the hiring of additional patent licensing, business development and engineering personnel, an increase in patent related legal, research and consulting expenses incurred in connection with the continued growth and expansion of our technology licensing and enforcement business, and an increase in corporate, general and administrative costs related to ongoing operations. ~~Inventor~~In the aggregate, total inventor royalties ~~expenses~~ and contingent legal fees expenses decreased in 2008, as compared to 2007, and increased in 2007, ~~and 2006,~~ as compared to ~~2005,~~2006, primarily due to the related ~~increase~~fluctuations in license fee revenues for the same periods, as discussed above, and the impact of the varying economic terms related to inventor agreements and contingent legal fee arrangements associated with the revenue generating patent portfolios in each period.

Our operating subsidiaries intend to sustain the long term growth of our intellectual property licensing and enforcement business through the identification and acquisition of, or the rights to, additional core patented technologies, across a wide range of technology areas that have been, or are anticipated to be, widely adopted by third parties in connection with the manufacture or sale of products and services. During ~~2007,~~2008, certain of our operating subsidiaries continued to execute our business strategy in the area of patent portfolio acquisitions, including, in the fourth quarter of ~~2007,~~2008, the acquisition of, or the acquisition of the rights to, patent portfolios in the ~~Authorized Spending Accounts, Compiler, Copy Protection, Projector,~~Automated Tax Reporting, Improved Lighting, Vehicle Occupant Sensing and ~~Virtual Server~~Wireless Data technology areas. During ~~2007,~~2008, we acquired a total of 3120 new patent portfolios with applications over a wide range of technology areas, as compared to 31 new patent portfolios in 2007 and 20 new patent portfolios in ~~2006 and 8 new patent portfolios in 2005 (excluding portfolios acquired in connection with the 2005 GPH Acquisition).~~

In January 2005, Acacia Global Acquisition Corporation acquired substantially all of the assets of Global Patent Holdings, LLC, a privately held patent holding company, which owned 11 patent licensing companies (“GPH Acquisition”). In connection with the acquisition we acquired ownership of companies that own or control the rights to 27 patent portfolios, which included 120 U.S. patents and certain foreign counterparts, covering technologies used in a wide variety of industries.

2006. Refer to “Liquidity and Capital Resources” below for information regarding the impact of patent and patent rights acquisitions on ~~Acacia Research Corporation’s~~our consolidated financial statements for the periods presented.

As of December 31, ~~2007,~~2008, we had several option agreements with third-party patent portfolio owners regarding the potential acquisition of additional patent portfolios.

Critical Accounting Policies

Our consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America. In preparing these financial statements, we make assumptions, judgments and estimates that can have a significant impact on amounts reported in our consolidated financial statements. We base our assumptions, judgments and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances. Actual results could differ materially from these estimates under different assumptions or conditions. On a regular basis, we evaluate our assumptions, judgments and estimates and make changes accordingly.

We believe that, of the significant accounting policies discussed in Note 2 to our consolidated financial statements, the following accounting policies require our most difficult, subjective or complex judgments:

· ●	revenue recognition;

· ●	stock-based compensation expense;

· ●	valuation of long-lived and intangible assets; and

· ●	impairment of marketable securities;

We discuss below the critical accounting assumptions, judgments and estimates associated with these policies. Historically, our assumptions, judgments and estimates relative to our critical accounting policies have not differed materially from actual results. For further information on our critical accounting policies, refer to Note 2 to the consolidated financial statements included herein.

Revenue Recognition

As described below, significant management judgments must be made and used in connection with the revenue recognized in any accounting period. Material differences may result in the amount and timing of revenue recognized or deferred for any period, if management made different judgments.

Revenue is recognized, in accordance with Staff Accounting Bulletin No. 104, “Revenue Recognition,” (“or SAB No. ~~104”),~~104, when (i) persuasive evidence of an arrangement exists, (ii) all obligations have been performed pursuant to the terms of the agreement, (iii) amounts are fixed or determinable and (iv) collectibility of amounts is reasonably assured.

We make estimates and judgments when determining whether the collectibility of license fees receivable from licensees is reasonably assured. We assess the collectibility of license fees receivable based on a number of factors, including past transaction history and the credit-worthiness of licensees. If it is determined that collection is not reasonably assured, the fee is recognized when collectibility becomes reasonably assured, assuming all other revenue recognition criteria have been met, which is generally upon receipt of cash. Management estimates regarding collectibility impact the actual revenues recognized each period and the timing of the recognition of revenues. Our assumptions and judgments regarding future collectibility could differ from actual events, thus materially impacting our financial position and results of operations.

Certain license agreements provide for the payment of contractually determined paid-up license fees to our operating subsidiaries in consideration for the grant of a non-exclusive, retroactive and future license to manufacture and/or sell products covered by patented technologies owned or controlled by our operating subsidiaries. Generally, the execution of these license agreements also provide for the release of the licensee from certain past and future claims, and the dismissal of any pending litigation. Pursuant to the terms of these agreements, our operating subsidiaries have no further obligation with respect to the grant of the non-exclusive retroactive and future license and related releases, including no express or implied obligation on our operating subsidiaries’ part to maintain or upgrade the technology, or provide future support or services. Generally, the agreements provide for the grant of the license and releases upon execution of the agreement. As such, the earnings process is generally complete upon the execution of the agreement, and revenue is recognized upon execution of the agreement, when collectibility is reasonably assured, and all other revenue recognition criteria have been met.

~~For those arrangements where royalties cannot be reasonably estimated, our operating subsidiaries recognize revenue upon~~ Depending on the receipt of cash or license fee statements from their licensees, as described at Note 2 to our consolidated financial statements contained elsewhere herein. Our operating subsidiaries recognize certain license fee revenues when earned over the termcomplexity of the underlying license agreement and related terms and conditions, significant judgments, assumptions and estimates may be required to determine when substantial delivery of contract elements has occurred, whether any significant ongoing obligations exist subsequent to contract execution, whether amounts due are collectible and the appropriate period or periods, in ~~exchange for~~which, or during which, respectively, the ~~grant~~completion of ~~non-exclusive licenses to use certain technologies for which our operating subsidiaries own or control patents. Our operating subsidiaries recognize revenue for~~the earning process occurs. Depending on the magnitude of specific license agreements, if different judgments, assumptions and estimates of license fees earned during the applicable period, based on historical activities of licensees, historical sales or per unit growth rates of licensees and other relevant available information regarding licensee activities that factor into the calculation of periodic license fees due. Revisions, if any, are made ~~for actual licensee fees received~~regarding contracts executed in the following quarter. Historically, these revisions have not been material to our consolidated financial statements. Estimates of periodic license fees due could differ from actual events, thus materially impactingany specific period, our financial ~~position and~~ results ~~of operations.~~may be materially affected.

Our operating subsidiaries are responsible for the licensing and enforcement of their respective patented technologies and pursue third parties that are utilizing their intellectual property without a license or who have under-reported the amount of royalties owed under a license agreement. As a result of these activities, from time to time, our operating subsidiaries may recognize royalty revenues in a current period that relate to infringements by licensees that occurred in prior periods. These royalty recoveries may cause revenues to be higher than expected during a particular reporting period and may not occur in subsequent periods. Differences between amounts initially recognized and amounts subsequently audited or reported as an adjustment to those amounts, are recognized in the period such adjustment is determined as a change in accounting estimate.

Stock-based Compensation Expense

Effective January 1, 2006, ~~Acacia Research Corporation~~we adopted the provisions of ~~Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” (“~~SFAS No. ~~123R”),~~123R, which is a revision of SFAS No. 123, “Accounting for Stock-Based Compensation.” SFAS No. 123R supersedes Accounting Principles Board, ~~(“APB”)~~or APB, Opinion No. 25, Accounting for Stock Issued to Employees, and amends SFAS No. 95, “Statement of Cash Flows.” SFAS No. 123R sets forth the accounting requirements for “share-based” compensation payments to employees and non-employee directors and requires all share based-payments to be recognized as expense in the statement of operations. In March 2005, the SEC published Staff Accounting Bulletin No. 107 (“SAB 107”), which requires stock-based compensation to be classified in the same expense line items as cash compensation (i.e. marketing, general and administrative expenses). The compensation cost for all stock-based awards is measured at the grant date, based on the fair value of the award (determined using a Black-Scholes option pricing ~~model)~~model for stock options and intrinsic value on the date of grant for nonvested restricted stock), and is recognized as an expense over the employee’s requisite service period (generally the vesting period of the equity award). Determining the fair value of stock-based awards at the grant date requires significant estimates and judgments, including estimating the market price volatility of our ~~classes of~~ common stock, ~~and~~future employee stock option exercise ~~behavior.~~

behavior and requisite service periods.

SFAS No. 123R also requires stock-based compensation expense to be recorded only for those awards expected to vest using an estimated pre-vesting forfeiture rate. As such, SFAS No. 123R requires ~~Acacia Research Corporation~~us to estimate pre-vesting option forfeitures at the time of grant and reflect the impact of estimated pre-vesting option forfeitures on compensation expense recognized. Estimates of pre-vesting forfeitures must be periodically revised in subsequent periods if actual forfeitures differ from those estimates. We consider several factors in connection with our estimate of pre-vesting forfeitures including types of awards, employee class, and historical pre-vesting forfeiture data. The estimation of stock awards that will ultimately vest requires judgment, and to the extent that actual results differ from our estimates, such amounts will be recorded as cumulative adjustments in the period the estimates are revised. If actual results differ significantly from these estimates, stock-based compensation expense and our results of operations could be materially impacted.

Refer to Notes 2 and 11 to ~~the Acacia Research Corporation~~our consolidated financial statements included in Part IV, Item 15 of this report for more information.

Valuation of Long-lived and Intangible Assets

We review long-lived assets, including patent related intangibles, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Factors we consider important, which could trigger an impairment review include the following:

●

significant underperformance relative to expected historical or projected future operating results;

●

significant changes in the manner of our use of the acquired assets or the strategy for our overall business;

●

significant negative industry or economic trends;

●

significant adverse changes in legal factors or in the business climate, including adverse regulatory actions or assessments; and

●

significant decline in our stock price for a sustained period.

We calculate estimated future undiscounted cash flows, before interest and taxes, resulting from the use of the asset and its estimated value at disposal and compare it to its carrying value in determining whether impairment potentially exists. If a potential impairment exists, a calculation is performed to determine the fair value of the long-lived asset. This calculation is based on a valuation model and discount rate commensurate with the risks involved. Third party appraised values may also be used in determining whether impairment potentially exists.

As described above, in assessing the recoverability of intangible assets, significant judgment is required in connection with estimates of market values, estimates of the amount and timing of future cash flows, and estimates of other factors that are used to determine the fair value of the respective assets. If these estimates or related projections change in future periods, future intangible asset impairment tests may result in a charges to earnings. Refer to Note 6 to the consolidated financial statements, included elsewhere herein, for information on impairment charges recorded during the periods presented.

Impairment of Marketable Securities

~~The~~Effective January 1, 2008, we adopted SFAS No. 157. SFAS No. 157 establishes a common definition for fair value to be applied to U.S. generally accepted accounting principles guidance requiring use of fair value, establishes a framework for measuring fair value, and expands disclosure about such fair value measurements. SFAS No. 157 defines fair value as the price that would be received for an asset or the exit price that would be paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants on the measurement date. SFAS No. 157 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs, where available. SFAS No. 157 established a three-level hierarchy of valuation techniques used to measure fair value, defined as follows:

●	Level 1 - Observable Inputs: Quoted prices in active markets for identical investments;

●	Level 2 - Pricing Models with Significant Observable Inputs: Other significant observable inputs, including quoted prices for similar investments, interest rates, credit risk, etc.; and

●	Level 3 - Unobservable Inputs: Significant unobservable inputs, including the entity’s own assumptions in determining the fair value of investments.

SFAS No. 157 requires the use of observable market inputs (quoted market prices) when measuring fair value and requires a Level 1 quoted price to be used to measure fair value whenever possible.

At December 31, 2008 and 2007, all of our investments ~~is determined by quoted market prices. Realized and~~are classified as available-for-sale, which are reported at fair value, in accordance with SFAS No. 157, with related unrealized gains and losses ~~are~~in the value of such securities recorded ~~based on the specific identification method.~~ as a separate component of comprehensive income (loss) in stockholders’ equity until realized.

We review impairments associated with our investments in marketable securities in accordance with Emerging Issues Task Force, ~~(“EITF”)~~or EITF, 03-1 and FSP SFAS 115-1 and 124-1, “The Meaning of Other-Than-Temporary-Impairment and Its Application to Certain Investments,” to determine the classification of any impairment as “temporary” or “other-than-temporary.” For investments classified as available-for-sale, unrealized losses that are other than temporary are recognized in the consolidated ~~statement~~statements of ~~operations and comprehensive income (loss) (hereinafter “consolidated statement of operations”).~~operations. An impairment is deemed other than temporary unless (a) we have the ability and intent to hold an investment for a period of time sufficient for recovery of its carrying amount and (b) positive evidence indicating that the investment's carrying amount is recoverable within a reasonable period of time outweighs any evidence to the contrary. All available evidence, both positive and negative, is considered to determine whether, based on the weight of that evidence, the carrying amount of the investment is recoverable within a reasonable period of time.

~~We believe that our investments in certain auction rate securities continue~~Refer to ~~approximate their par value; however, such risks, including the systemic failure~~“Consolidated Results of ~~future auctions~~Operations – Other” below for ~~auction rate securities, may result in a loss of liquidity, substantial impairment to our investments, realization of substantial future losses, or a complete loss of the investment~~information regarding other than temporary charges recorded in the ~~long-term which may have a material adverse effect on our business, results~~consolidated statements of operations ~~liquidity, and financial condition. See Note 2 of our Notes to Consolidated Financial Statements~~ for ~~additional details about our investments in auction rate securities and other marketable securities.~~the year ended December 31, 2008.

Acacia Research Corporation

Consolidated Results of Operations

Net Loss (In thousands)

	2008			2007			2006
Loss from continuing operations	$	(13,757	)	$	(7,359	)	$	(5,363	)
Loss from discontinued operations - Split-off of CombiMatrix Corporation and other		-			(8,086	)		(20,093	)
Net loss	$	(13,757	)	$	(15,445	)	$	(25,456	)

2007 2006 2005

Loss from continuing operations $ (7,359 ) $ (5,363 ) $ (6,038 )
Loss from discontinued operations - Split-off of CombiMatrix Corporation and other (8,086 ) (20,093 ) (12,638 )
Net loss (15,445 ) (25,456 ) (18,676 )

The changes in consolidated ~~net~~ loss from continuing operations were primarily due to operating results and activities, as discussed below.

Revenues (In thousands)

		2008				2007				2006
License fees		$	48,227			$	52,597			$	34,825

2007 2006 2005

License fees $ 52,597 $ 34,825 $ 19,574

License Fees. Revenues for ~~2007~~2008 included license fees from 80 new licensing agreements covering 30 of our technology licensing and enforcement programs, as compared to 91 new licensing agreements covering 16 of our technology licensing and enforcement programs ~~as compared to~~in 2007, and 72 new licensing agreements covering 14 of our technology licensing and enforcement programs in 2006 ~~and 83 new licensing agreements covering 12 of our technology licensing and enforcement programs in 2005.~~. The increase in license fee revenues in ~~2007~~2008 and ~~2006,~~2007, as compared to ~~2005,~~2006, reflects the impact of the increase in patent portfolios owned or controlled by our operating subsidiaries since ~~2005,~~2006, and the related increase in the number of patent licensing and enforcement programs developed, launched and generating revenues since ~~2005.~~2006. On a consolidated basis, as of December 31, ~~2007, 28~~2008, 48 of our licensing programs had begun generating licensing revenues, up from 28 as of December 31, 2007 and 20 as of December 31, ~~2006 and 13 as of December 31, 2005.~~2006. License fee revenues recognized by our operating subsidiaries fluctuate from period to period primarily based on the following factors:

●

the timing and results of patent filings and other enforcement proceedings relating to our intellectual property rights;


●	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 associated with a specific licensee;

·
●	the specific terms and conditions of agreements executed each period and the periods of infringement contemplated by the respective payments;

·
●	fluctuations in the total number of agreements executed;

·
●	fluctuations in the sales results or other royalty per unit activities of our licensees that impact the calculation of license fees due;
·
●	the timing of the receipt of periodic license fee payments and/or reports from licensees; and

·
●	fluctuations in the net number of active licensees period to period.

Two licensees individually accounted for 13% and 12% of license fee revenue recognized during the year ended December 31, 2008, two licensees individually accounted for 19% and 12% of license fee revenue recognized during the year ended December 31, 2007, and one licensee accounted for 14% of license fee revenue recognized during the year ended December 31, 2006.

Costs incurred in connection with our operating subsidiaries licensing and enforcement activities, other than inventor royalties expense, contingent legal fees expense and patent-related legal expenses, are included in marketing, general and administrative expenses.

Operating Expenses (In thousands)

	2008		2007		2006
Marketing, general and administrative expenses (including non-cash stock compensation expense of $7,355 for 2008, $5,908 for 2007 and $3,946 for 2006)	$	24,014	$	20,042	$	14,123
Inventor royalties and contingent legal fees expense - patents		27,424		29,224		17,159
Legal expenses - patents		4,949		7,024		4,780
Amortization of patents		6,043		5,583		5,313
Write-off of patent-related intangible asset		-		235		297

2007 2006 2005

Marketing, general and administrative expenses (including non-cash stock compensation
expense of $5,908 for 2007, $3,946 for 2006 and $356 for 2005) $ 20,042 $ 14,123 $ 8,097
Inventor royalties and contingent legal fees expense - patents 29,224 17,159 11,331
Legal expenses - patents 7,024 4,780 2,468
Write-off of patent-related intangible asset 235 297 -
Amortization of patents 5,583 5,313 4,922

Marketing, General and Administrative Expenses. Marketing, general and administrative expenses ~~consist of~~include employee compensation and related personnel costs, including non-cash stock compensation expenses, office and facilities costs, legal and accounting professional fees, public relations, marketing, stock administration and other corporate costs, and patent related development, ~~commercialization,~~licensing, research, consulting and maintenance costs.

Excluding the impact of non-cash stock compensation charges discussed below, the net increase for the periods presented was due primarily to the addition of licensing, business development and engineering personnel and an increase in other personnel related expenses in each comparable period, a one-time severance charge for an employee separation under the Acacia Research Corporation Executive Severance Plan in the first quarter of 2007, an increase in patent acquisition and business development related research and consulting costs and an increase in corporate, general and administrative costs, including an increase in accounting fees related to the CombiMatrix Split-off Transaction. The overall increase in marketing, general and administrative expenses is reflective of the continued growth and expansion of our intellectual property acquisition, licensing and enforcement business conducted by our operating subsidiaries and related ongoing operations. In 2007, as compared to 2006, these increases were partially offset by a decrease in consulting expenses due to the expiration of the consulting agreement with the former CEO of Global Patent Holdings, LLC in January 2007. The increases in 2006, as compared to 2005, were partially offset by a reduction in Acacia Research Corporation’s Sarbanes-Oxley compliance costs.

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Non-cash stock compensation charges increased during 2007, as compared to 2006, due to the issuance of equity based incentive awards to new and existing employees during 2007. In addition, the increase in non-cash stock compensation expense also reflects the increase in the AR-Acacia Technologies stock price during 2007, as compared to 2006, as illustrated at Item 5. “Recent Market Prices” above. The weighted average fair value of stock options granted during 2007 and 2006 was $9.07 and $5.35, respectively. The weighted average fair value of nonvested restricted shares granted during 2007 and 2006 was $14.04 and $11.87, respectively (see Note 11 to the consolidated financial statements for information on the determination of fair value for share based awards under SFAS No. 123R). The increase in non-cash stock compensation charges in 2006, as compared to 2005, reflects our adoption of SFAS No. 123R, effective January 1, 2006, which required public companies to measure all employee stock-based compensation awards using a fair-value method and record such expense in their consolidated financial statements, as described under “Critical Accounting Estimates.”

A summary of the main drivers of the change in marketing, general and administrative expenses, including the impact of non-cash stock compensation charges, for the periods presented, is as follows (in thousands):

2007 vs. 2006 2006 vs. 2005

Increase in personnel expenses $ 2,767 $ 1,247
Increase (decrease) in GPH Acquisition related consulting expenses (925 ) 96
One-time severance charge for employee separation 360 -
Increase in foreign taxes paid on licensing fees 125 6
Increase in accounting and other professional fees 141 392
Increase in patent development / commercialization and other 1,021 92
Increase in office and facilities and other marketing, general and administrative costs 468 603
Increase in non-cash stock compensation expense 1,962 3,590

	2008 vs. 2007			2007 vs. 2006
Addition of licensing, business development and engineering personnel	$	1,510		$	2,767
Consulting expenses paid to former CEO of Global Patent Holdings, LLC		(74	)		(925	)
One time employee severance charges		(129	)		360
Foreign taxes paid on licensing fees		(27	)		125
Business development and licensing related patent research and consulting costs		1,069			1,021
Corporate, general and administrative costs		176			609
Non-cash stock compensation expense		1,447			1,962

The overall increase in marketing, general and administrative expenses is reflective of the continued growth and expansion of our intellectual property acquisition, licensing and enforcement business conducted by our operating subsidiaries and related ongoing operations.

Non-cash stock compensation expense increased during 2008, as compared to 2007 and 2006, primarily due to an increase in the average fair value of equity-based incentive awards expensed during the periods presented. The weighted-average grant date fair value of equity-based incentive awards expensed during 2008, 2007 and 2006, which is generally based on the grant date market value of our common stock, was approximately $11.66, $9.95 and $4.96, respectively. The weighted-average grant date fair value of equity-based awards granted during 2008, 2007 and 2006 was $4.85, $12.74 and $6.88, respectively. Equity-based awards are generally expensed on a straight-line basis over a two to three year vesting period. Refer to Note 11 to our consolidated financial statements, included elsewhere herein, for additional information on equity-based award grant activity for the periods presented.

Inventor Royalties and Contingent Legal Fees Expense. Inventor royalties expense totaled $15.0 million, $12.1 million and $9.6 million in 2008, 2007 and 2006, respectively, and contingent legal fees expense totaled $12.4 million, $17.2 million and $7.5 million in 2008, 2007 and 2006, respectively. Inventor royalties expenses and contingent legal fees expenses for the periods presented were incurred in connection with the recognition of the related license fee revenues, summarized above. The majority of the patent portfolios owned or controlled by our operating subsidiaries are subject to patent and patent rights agreements with inventors containing provisions granting to the original patent owner the right to receive inventor royalties based on future net revenues, as defined in the respective agreements, and may also be subject to contingent legal fee arrangements with external law firms engaged on a contingent fee basis. The economic terms of the inventor and contingent fee arrangements, if any, vary across our patent portfolios. Certain contingent legal fee arrangements employ a graduated fee structure based on the stage of litigation. As such, inventor royalties and contingent legal fee expenses fluctuate period to period based on the amount of revenues recognized each period and the mix of specific patent portfolios, with varying economic terms, generating revenues each period.

~~The increase~~Certain patent portfolios generating revenues in ~~inventor royalties expense and~~2008 had contingent legal ~~fees expense in 2007 was due in part to the increase in license~~arrangements with lower applicable contingent fee ~~revenues recognized in 2007,~~rates, as compared to 2006, as discussed above, and also reflects the impact of the mix of patent portfolios with varying economic terms generating the revenues during the respective periods. A portion of 2006 revenues were comprised of license fees from patent portfolios that were not subject to a contingent legal fee arrangement, whereas the majority ofthose patent portfolios generating revenues in 2007, ~~were subject to contingent legal fee arrangements. As a result, in 2006, no contingent legal fees expense was incurred on a portion of revenues,~~ resulting in the ~~128% increase~~28% decrease in contingent legal fees ~~expense~~expenses in 2008, versus 2007, as compared to ~~2006, as compared to 51% increase~~the 8% decrease in license fee revenues ~~for~~during the same periods.

~~Results~~ Certain patent portfolios generating revenues in ~~2005 included $225,000 of V-chip related~~2007 had inventor agreements with lower than average inventor royalty rates, as compared to those patent portfolios generating revenues in 2008, resulting in the 24% increase in inventor royalties ~~expense recognized~~expenses in 2008, versus 2007, as compared to the 8% decrease in license fee revenues during the same periods. In addition, the lower contingent legal fee rates for certain patent portfolios generating revenue in 2008 also contributed to the period to period increase in inventor royalties expenses as a ~~result~~percentage of ~~the conclusion of all V-chip related litigation activities in October of 2005.~~license fee revenues recognized.

Legal Expense – Patents. Patent-related legal expenses include patent-related prosecution and enforcement costs incurred by outside law firms engaged on an hourly basis and the out-of-pocket expenses incurred by outside law firms engaged on a contingent fee basis. Patent-related legal expenses fluctuate from period to period based on patent enforcement and prosecution activity associated with ongoing licensing and enforcement programs and the timing of the commencement of new licensing and enforcement programs in each period. Patent-related legal expenses include case related costs billed by outside counsel for discovery, depositions, economic analyses, damages assessments, expert witnesses and other consultants, case related audio/video presentations for the court, and other litigation support and administrative costs. Patent-related legal expenses fluctuate from period to period based on patent enforcement and prosecution activity associated with ongoing licensing and enforcement programs and the timing of the commencement of new licensing and enforcement programs in each period.

2428

In 2007, we incurred increased litigation support related out of pocket expenses, third party technical consulting expenses and professional expert expenses incurred in connection with certain of our patent portfolios that were further along in the prosecution of the related litigation and certain of our enforcement actions that proceeded to trial and concluded, resulting in increased patent –related legal expenses in 2007, as compared to 2008. During 2008, none of our ongoing enforcement actions went to trial, despite an increase in the overall number of outstanding enforcement actions during the period.

The increase in patent related legal expenses in 2007, as compared to 2006, is primarily due to a net increase in ongoing patent enforcement litigation and an increase in litigation support related out of pocket expenses, third party technical consulting expenses and professional expert expenses incurred in connection with certain of our patent portfolios that ~~are~~were further along in the prosecution of the related litigation and certain of our patent portfolios that ~~have~~ proceeded to trial and ~~concluded. The increase~~concluded in patent related legal expenses in 2006, as compared to 2005, is primarily due to a net increase in ongoing patent enforcement litigation in each respective period, and to a lesser extent, an increase in the number of portfolios where we have engaged outside law firms on an hourly or discounted hourly basis.2007.

We expect patent-related legal expenses to continue to fluctuate period to period based on the factors summarized above, in connection with current and future patent ~~commercialization~~licensing and enforcement programs.

Amortization of ~~Patents.~~Patents. During the fourth quarter of 2008, pursuant to the terms of the respective inventor agreement, management elected to terminate its rights to exclusively license a patent portfolio. As such, the economic useful life of the patent related intangible asset was reduced, resulting in the acceleration of $1,094,000 of amortization expense for the patent related asset and an increase in amortization expense in 2008, as compared to 2007. This increase was partially offset by a reduction in scheduled amortization expense resulting from the completion of amortization on certain portfolios acquired in connection with the January 2005 GPH Acquisition.

The increase in 2007, as compared to 2006, was due to additional patent amortization charges related to certain patent portfolios acquired by our operating subsidiaries in late 2006 and throughout 2007. Patent amortization charges will continue to be significant in future periods as we continue to amortize the acquired patent related costs over a weighted-average remaining economic useful life of approximately four years.

The increase in 2006, as compared to 2005, was due to twelve full months of patent amortization expense resulting from the GPH Acquisition in 2006, as compared to 11 months of amortization in 2005. Patent amortization expense related to the GPH Acquisition was $4.7 million and $4.4 million in 2006 and 2005, respectively. In addition, patent amortization expense in 2006 and 2005 includes additional patent amortization charges related to certain of the patent portfolios acquired by our operating subsidiaries subsequent to the GPH Acquisition.

Refer to “Liquidity and Capital Resources” below for patent portfolio acquisition costs incurred during the periods presented.

Other

~~Write-off~~At December 31, 2008, the par value of ~~Patent-related Intangible Asset.~~ auction rate securities collateralized by student loan portfolios totaled $2.75 million. As a result of the liquidity issues associated with the failed auctions described in Item 1A. “Risk Factors” elsewhere herein, we estimate that the fair value of these auction rate securities no longer approximates their par value. Due to the estimate that the market for these student loan collateralized instruments may take in excess of twelve months to fully recover, we have classified these investments as noncurrent in the accompanying December 31, 2008 consolidated balance sheet. In ~~September 2007,~~addition, we recorded an other-than-temporary loss on our student loan collateralized auction rate securities of $250,000 in the accompanying consolidated statement of operations for the year ended December 31, 2008. Refer to Note 7 to our consolidated financial statements elsewhere herein for information on the valuation of auction rate securities held as of December 31, 2008.

At December 31, 2008, we also held auction rate securities with a ~~non-cash impairment charge~~par value totaling $975,000, issued by high credit quality closed-end investment companies. Despite the reduction in liquidity resulting from the failure of ~~$235,000, related~~auctions for these securities since February 2008, the issuers of these auction rate securities have redeemed, at par, approximately 66% of the securities held by us since February 2008, and have indicated that they continue to evaluate ways to provide additional liquidity to their auction rate security holders. Additionally, these securities continue to be AAA rated and the underlying funds continue to meet certain specified asset coverage tests required by the rating agencies, as well as the 200% asset coverage test with respect to auction rate securities set forth in the Investment Company Act of 1940, as amended. However, due to the ~~write-off~~impact of ~~a patent-related intangible asset. The related licensing program was completed during~~ the ~~third quarter~~reduced liquidity as of ~~2007 resulting~~December 31, 2008, we recorded an other-than-temporary loss on our auction rate securities issued by closed-end investment companies of $236,000 in the ~~write-off~~accompanying statement of operations for the ~~remaining carrying value of the patent-related intangible asset~~year ended December 31, 2008, and have classified these securities as of September 30, 2007. In June 2006, we recorded a non-cash impairment charge of $297,000, related to the write-off of a patent-related intangible asset. During the second quarter of 2006, pursuant to the terms of the respective license agreement, management elected to terminate its rights to exclusively license and enforce the patent, resultingnoncurrent assets in the ~~write-off of the remaining carrying value of the patent-related intangible asset as of June 30, 2006.~~accompanying December 31, 2008 consolidated balance sheet.

Discontinued Operations – ~~Split-off~~Split-Off of CombiMatrix Corporation

In January 2006, Acacia Research Corporation’s board of directors approved a plan for its wholly owned subsidiary, CombiMatrix Corporation, to become an independent public company. CombiMatrix Corporation’s registration statement on Form S-1 was declared effective by the SEC on June 8, 2007. Following the redemption period required by Acacia Research Corporation’s Restated Certificate of Incorporation, onOn August 15, 2007, ~~(the “Redemption Date”),~~or the Redemption Date, CombiMatrix ~~Corporation~~ was split-off from ~~Acacia Research Corporation~~us through the redemption of all outstanding shares of ~~AR-CombiMatrix~~Acacia Research-CombiMatrix common stock in exchange for the distribution of new shares of CombiMatrix, ~~Corporation,~~ on a pro-rata basis, to the holders of ~~AR-CombiMatrix~~Acacia Research-CombiMatrix stock as of the Redemption Date (the “Split-off Transaction”). On the Redemption Date, every ten (10) shares of AR-CombiMatrix stock outstanding on August 15, 2007, was redeemed for one (1) share of common stock of CombiMatrix Corporation.Date. Subsequent to the Redemption Date, ~~Acacia Research Corporation~~we no longer ~~owns~~own any equity interests in CombiMatrix ~~Corporation~~ and the ~~two companies operate independently~~CombiMatrix group is no longer one of ~~each other.~~our business groups.

As a result of the ~~Split-off~~Split-Off Transaction, the assets, liabilities, results of operations and cash flows of CombiMatrix ~~Corporation~~ have been eliminated from ~~the~~our continuing operations ~~of Acacia Research Corporation~~ and ~~Acacia Research Corporation does~~we do not have any continuing involvement in the operations of ~~CombiMatrix Corporation.~~CombiMatrix. As a result of the ~~Split-off~~Split-Off Transaction, we have disposed of our investment in CombiMatrix, ~~Corporation,~~ and therefore, in accordance with guidance set forth in SFAS No. 144, ~~Acacia Research Corporation’s~~our accompanying consolidated ~~balance sheets,~~financial statements ~~of operations and statements of cash flows~~ for ~~the current period~~all historical periods presented reflect the assets, liabilities, results of operations and cash flows for CombiMatrix ~~Corporation~~ as discontinued operations. ~~Consolidated financial statements presented for the comparable prior year periods have been restated to conform to this presentation.~~ CombiMatrix ~~Corporation~~ was previously presented as a separate operating segment of ~~Acacia Research Corporation~~us under SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information.”

The ~~Split-off~~Split-Off Transaction was accounted for by ~~Acacia Research Corporation~~us at historical cost. Accordingly, no gain or loss on disposal was recognized in the ~~accompanying~~2007 consolidated ~~statements~~statement of operations. Included in the ~~current period~~December 31, 2007 consolidated balance sheet is a charge to consolidated shareholders’ equity totaling $35,444,000, reflecting the distribution of our investment in the net assets of CombiMatrix ~~Corporation~~ to holders of ~~AR-CombiMatrix~~Acacia Research-CombiMatrix stock, as of the Redemption ~~Date, as described above.~~Date. We received a private letter ruling from the IRS with regard to the U.S. federal income tax consequences of the ~~Split-off~~Split-Off Transaction to the effect that the ~~Split-Transaction~~Split-Off Transaction will be treated as a tax-free exchange under Sections 368 and 355 of the ~~Internal Revenue Code of 1986, as amended.~~Code.

Refer to Note 10A to ~~the Acacia Research Corporation~~our consolidated financial statements included elsewhere herein for information regarding the ~~carrying amount(s) of the major classes of assets, liabilities,~~ revenues and pretax loss included in discontinued operations for the applicable historical periods presented.

~~Other Discontinued Operations.~~ Results for 2005 include charges, net of minority interests, of $237,000 related to estimated additional costs to be incurred in connection with the discontinued operations of Soundbreak.com (originally ceased operations in February 2001), related primarily to certain noncancellable lease obligations and a reduction in estimated amounts recoverable from existing sublease arrangements. The related lease obligations, which were guaranteed by Acacia Research Corporation, expired in August 2005.

Inflation

Inflation has not had a significant impact on ~~Acacia Research Corporation~~us or any of our subsidiaries in the current or prior periods.

Liquidity and Capital Resources

~~Acacia Research Corporation’s~~Our consolidated cash and cash equivalents and ~~short-term~~ investments totaled $51.5 million at December 31, 2008, compared to $51.4 million at December 31, ~~2007,~~2007. Working capital at December 31, 2008 was $42.6 million, compared to ~~$45.0~~$48.1 million at December 31, ~~2006. Working~~2007. The change in working capital ~~related~~primarily reflects the impact of cash flows used in continuing operating and investing activities, as discussed below. In addition, the change in working capital also reflects the reclassification of $2.75 million (par value) of auction rate securities collateralized by student loans and $975,000 (par value) of auction rate securities issued by high credit quality closed-end investment companies to ~~continuing operations, at~~noncurrent assets as of December 31, ~~2007 was $48.1 million, compared to $42.2 million at December 31, 2006.~~2008, as described above.

The net change in cash and cash equivalents and ~~short-term~~ investments related to continuing operations for 2008, 2007 ~~2006~~ and ~~2005~~2006 was comprised of the following (in thousands):

	2007			2006		2005
									2008		2007			2006
Net cash provided by (used in) continuing operations:
Operating activities	$	5,166		$	6,608	$	(2,608	)	$	2,598	$	5,166		$	6,608
Investing activities		(2,145	)		10,513		(13,094	)		5,070		(2,145	)		10,513
Financing activities		5,014			1,475		19,836			142		5,014			1,475

~~Item 9A. CONTROLS AND PROCEDURES~~

Item 9A.

CONTROLS AND PROCEDURES

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as ~~amended.~~amended, or the Exchange Act. Based on this evaluation, our principal executive officer and our principal financial officer concluded that, as of the end of the period covered by this annual report, our disclosure controls and procedures were effective to ensure that the information required to be disclosed by us in the reports that we file or submit under the ~~Securities~~ Exchange Act ~~of 1934~~ is accumulated and communicated to management, including our chief executive officer and chief financial officer, to allow timely decisions regarding required disclosure, and that such information is recorded, processed, summarized and reported within the time periods prescribed by the SEC.

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in Internal Control - Integrated Framework, our management concluded that our internal control over financial reporting was effective as of December 31, ~~2007.~~2008.

Grant Thornton, LLP, the independent registered public accounting firm who audited ~~the Company’s~~our consolidated financial statements included in this Annual Report on Form 10-K, has issued a report on ~~the Company’s~~our internal control over financial reporting, which is included herein.

There were no changes in our internal control over financial reporting during the fourth fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

~~Item 9B. OTHER INFORMATION~~

~~None~~

Item 9B.

OTHER INFORMATION

None

2933

PART III

~~Item 10.~~

Item 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Except as provided below, the information required by this Item is incorporated by reference from the information under the captions entitled “Election of Directors-Nominees,” “Executive Officers” and “Section 16(a) Beneficial Ownership Reporting Compliance” in our definitive proxy statement to be filed with the SEC no later than April ~~29, 2008.~~30, 2009.

Code of Conduct.

~~Acacia Research Corporation has~~We have adopted a Code of Conduct that applies to all of its employees, including its chief executive officer, chief financial and accounting officer, president and any persons performing similar functions. Our Code of Conduct is provided on our internet website at www.acaciaresearch.com.

~~Item 11.~~

Item 11.

EXECUTIVE COMPENSATION

~~The~~In accordance with Instruction G(3) to Form 10-K, the information required by this Item is incorporated by reference from the information under the caption entitled “Executive Officer Compensation and Other Information” in our definitive proxy statement to be filed with the SEC no later than April ~~29, 2008.~~30, 2009.

~~Item 12.~~

Item 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

~~The~~In accordance with Instruction G(3) to Form 10-K, the information required by this Item is incorporated by reference from the information under the caption entitled “Security Ownership of Certain Beneficial Owners and Management” in our definitive proxy statement to be filed with the SEC no later than April ~~29, 2008.~~30, 2009.

~~Item 13.~~

Item 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

~~The~~In accordance with Instruction G(3) to Form 10-K, the information required by this Item is incorporated by reference from the information under the caption entitled “Certain Transactions” in our definitive proxy statement to be filed with the SEC no later than April ~~29, 2008.~~30, 2009.

~~Item 14.~~

Item 14.

PRINCIPAL ACCOUNTING FEES AND SERVICES

~~The~~In accordance with Instruction G(3) to Form 10-K, the information required by this Item is incorporated by reference from the information under the caption entitled “Audit Committee Report” in our definitive proxy statement to be filed with the SEC no later than April ~~29, 2008.~~30, 2009.

3034

PART IV

~~Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES~~

Item 15.

EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(a) The following documents are filed as part of this report.

~~(1) Financial Statements~~

	(1) Financial Statements	Page

	Acacia Research Corporation Consolidated Financial Statements

	Reports of Independent Registered Public Accounting Firm – Grant Thornton LLP	F-1
	Report of Independent Registered Public Accounting Firm – PricewaterhouseCoopers LLP	F-3
	Consolidated Balance Sheets as of December 31, ~~2007~~2008 and ~~2006~~2007	F-4
	Consolidated Statements of Operations and Comprehensive Loss for the Years Ended December 31, 2008, 2007 ~~2006~~ and ~~2005~~2006	F-5
	Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2008, 2007 ~~2006~~ and ~~2005~~2006	F-6
	Consolidated Statements of Cash Flows for the Years Ended December 31, 2008, 2007 ~~2006~~ and ~~2005~~2006	F-7
	Notes to Consolidated Financial Statements	F-8

	(2) Financial Statement Schedules

	Financial statement schedules are omitted because they are not applicable or the required information is shown in the Financial Statements or the Notes thereto.

	(3) Exhibits

	Refer to Item 15(b) below.

~~(2) Financial Statement Schedules~~

~~Financial statement schedules are omitted because they are not applicable or the required information is shown in the Financial Statements or the Notes thereto.~~

~~(3) Exhibits~~

~~Refer to Item 15(b) below.~~

(b) Exhibits. The following exhibits are either filed herewith or incorporated herein by reference:

Exhibit Number	Description

2.1	Agreement and Plan of Merger of Acacia Research Corporation, a California corporation, and Acacia Research Corporation, a Delaware corporation, dated as of December 23, 1999 (1)
2.2	Agreement and Plan of Reorganization by and among Acacia Research Corporation, Combi Acquisition Corp. and CombiMatrix Corporation dated as of March 20, 2002 (2)
3.1	Amended and Restated Certificate of Incorporation ~~as amended(3)~~(3)
3.2	Amended and Restated Bylaws (13)
3.2.1	Amendment to Amended and Restated Bylaws (14)
10.1*	Acacia Research Corporation 1996 Stock Option Plan, as amended (4)
10.2*	Form of Option Agreement constituting the Acacia Research Corporation 1996 Executive Stock Bonus Plan (5)
10.3*	2002 Acacia Technologies Stock Incentive Plan (6)
10.4*	2007 Acacia Technologies Stock Incentive Plan (7)
10.5*	Form of Acacia Technologies Stock Option Agreement for the 2007 Acacia Technologies Stock Incentive Plan (8)
10.6*	Form of Acacia Technologies Stock Issuance Agreement for the 2002 Acacia Technologies Stock Incentive Plan (8)
10.7*	Form of Acacia Technologies Stock Issuance Agreement for the 2007 Acacia Technologies Stock Incentive Plan (8)
10.8	Lease Agreement dated January 28, 2002, between Acacia Research Corporation and The Irvine Company (9)

~~10.9~~

Exhibit

Number

~~Settlement Agreement dated September 30, 2002, by and among Acacia Research Corporation, CombiMatrix Corporation, Donald D. Montgomery, Ph.D. and Nanogen, Inc.(10)~~Description


10.10	Form of Indemnification Agreement ~~(11)~~(10)
10.11	Form of Subscription Agreement between Acacia Research Corporation and certain investors ~~(12)~~(11)
10.12	Third Amendment to lease dated January 28, 2002 between Acacia Research Corporation and the Irvine Company ~~(13)~~

~~Exhibit~~ ~~Number~~	~~Description~~

~~10.13~~	~~Standby Equity Distribution Agreement dated June 14, 2006 between Acacia Research Corporation and Cornell Capital Partners, L.P. (14)~~
~~10.14~~	~~Amendment to Standby Equity Distribution Agreement dated June 14, 2006 between Acacia Research Corporation and Cornell Capital Partners, L.P. (15)~~
~~10.15~~	~~Manufacturing and Supply Agreement between Acacia Research Corporation and Furuno Electric Company, Ltd. Effective July 1, 2006 (16)~~
~~10.16~~	~~Placement Agency Agreement between Acacia Research Corporation and Oppenheimer & Co., dated December 7, 2006 (17)~~
~~10.17~~	~~Form of Subscription Agreement (17)~~
~~10.18~~	~~Form of Investors Warrant (17)~~(12)
10.19*	Employment Agreement, dated January 28, 2005, by and between Acacia Technologies Services Corporation, and Dooyong Lee, as amended (13)
10.19.1*	Amendment to Employment Agreement, dated December 17, 2008, by and between Acacia Research Corporation and Dooyong Lee
10.20*	Employment Agreement, dated April 12, 2004, by and between Acacia Media Technologies Corporation and Edward ~~Treska.~~Treska (13)
10.20.1*	Addendum to Employment Agreement with Edward Treska, dated March 31, 2008 (15)
10.21	Fourth Amendment to lease dated January 28, 2002 between Acacia Research Corporation and the Irvine Company (13)
10.22	Fifth Amendment to Lease dated January 28, 2002 between Acacia Research Corporation and the Irvine Company (13)
10.23*	Employment Agreement, dated March 31, 2008, by and between Acacia Technologies, LLC and Paul Ryan (15)
10.23.1*	Amendment to Employment Agreement, dated December 17, 2008, by and between Acacia Technologies, LLC and Paul Ryan
10.24*	Employment Agreement, dated March 31, 2008, by and between Acacia Technologies, LLC and Robert L. Harris (15)
10.24.1*	Amendment to Employment Agreement, dated December 17, 2008, by and between Acacia Research Corporation and Robert L. Harris
10.25*	Amended Employment Agreement, dated March 31, 2008, by and between Acacia Technologies, LLC and Clayton J. Haynes (15)
10.25.1*	Amendment to Amended Employment Agreement, dated December 17, 2008, by and between Acacia Research Corporation and Clayton J. Haynes
10.26*	Amended Acacia Research Corporation Executive Severance Policy
21.1	List of Subsidiaries
23.1	Consent of Independent Registered Public Accounting Firm - Grant Thornton LLP
23.2	Consent of Independent Registered Public Accounting Firm - PricewaterhouseCoopers LLP
31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of the Chief Executive Officer provided pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of the Chief Financial Officer provided pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

___________________________

*	The referenced exhibit is a management contract, compensatory plan or arrangement.

†	Portions of this exhibit have been omitted pursuant to a request for confidential treatment and have been filed separately with the United States Securities and Exchange Commission.

(1)	Incorporated by reference from Acacia Research Corporation’s Current Report on Form 8-K filed on December 30, 1999 (SEC File No. 000-26068).

(2)	Incorporated by reference as Appendix A to the Proxy Statement/Prospectus which formed part of Acacia Research Corporation’s Registration Statement on Form S-4 (SEC File No. 333-87654) which became effective on November 8, 2002.

(3)	Incorporated by reference to Acacia Research Corporation’s ~~Quarterly~~Current Report ~~Amendment No. 1~~ on Form ~~10-Q/A for the period ended June 30, 2006,~~8-K filed on June 5, ~~2007.~~2008 (SEC File No. 000-26068).

(4)	Incorporated by reference as Appendix A to the Definitive Proxy Statement on Schedule 14A filed on April 10, 2000 (SEC File No. 000-26068).

(5)	Incorporated by reference from Acacia Research Corporation’s Definitive Proxy as Appendix A Statement on Schedule 14A filed on April 26, 1996 (SEC File No. 000-26068).

(6)	Incorporated by reference as Appendix E to the Proxy Statement/Prospectus which formed part of Acacia Research Corporation’s Registration Statement on Form S-4 (SEC File No. 333-87654) which became effective on November 8, 2002.

(7)	Incorporated by reference to Acacia Research Corporation’s Registration Statement on Form S-8 (SEC File No. 333-144754) which became effective on July 20, 2007.

(8)	Incorporated by reference to Acacia Research Corporation’s Quarterly Report on Form 10-Q for the period ended September 30, ~~2007.~~2007, filed on November 2, 2007 (SEC File No. 000-26068).

(9)	Incorporated by reference from Acacia Research Corporation’s Annual Report on Form 10-K for the year ended December 31, 2001 filed on March 27, 2002 (SEC File No. 000-26068).

~~(10)~~

Incorporated by reference as Appendix D to the Proxy Statement/Prospectus which formed part of Acacia Research Corporation’s Registration Statement on Form S-4 (SEC File No. 333-87654) which became effective on November 8, 2002.

~~(11)~~(10)

Incorporated by reference from Acacia Research Corporation’s Annual Report on Form 10-K for the year ended December 31, 2002 filed on March 27, 2003 (SEC File No. 000-26068).

~~(12)~~(11)

Incorporated by reference from Acacia Research Corporation’s Current Report on Form 8-K filed on September 19, 2005 (SEC File No. 000-26068).

~~(13)~~(12)

Incorporated by reference from Acacia Research Corporation’s Quarterly Report on Form 10-Q for the period ended March 31, 2006, filed on May 10, 2006 (SEC File No. 000-26068).

(13)	Incorporated by reference from Acacia Research Corporation’s Annual Report on Form 10-K for the year ended December 31, 2007, filed on March 14, 2008 (File No. 000-26068).

(14)	Incorporated by reference from Acacia Research Corporation’s Current Report on Form 8-K filed on ~~June 15, 2006 (SEC File~~January 7, 2008 (File No. 000-26068).

(15)	Incorporated by reference from Acacia Research Corporation’s Current Report on Form 8-K filed on ~~June 22, 2006~~April 2, 2008 (SEC File No. 000-26068).

~~(16)~~

~~Incorporated by reference from Acacia Research Corporation’s Quarterly Report on Form 10-Q filed on November 9, 2006 (SEC File No. 000-26068).~~

~~(17)~~

~~Incorporated by reference from Acacia Research Corporation’s Report on Form 8-K filed on December 13, 2006 (SEC File No. 000-26068).~~

3338

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

~~Dated: March 14, 2008~~Dated: February 26, 2009	ACACIA RESEARCH CORPORATION


	/s/ Paul R. Ryan
	Paul R. Ryan
	Chairman of the Board
	and Chief Executive Officer
	(Authorized Signatory)

POWER OF ATTORNEY

We, the undersigned directors and officers of Acacia Research Corporation do hereby constitute and appoint Paul R. Ryan and Clayton J. Haynes, and each of them, as our true and lawful attorneys-in-fact and agents with power of substitution, to do any and all acts and things in our name and behalf in our capacities as directors and officers and to execute any and all instruments for us and in our names in the capacities indicated below, which said attorney-in-fact and agent may deem necessary or advisable to enable said corporation to comply with the Securities Exchange Act of 1934, as amended, and any rules, regulations and requirements of the Securities and Exchange Commission, in connection with this Annual Report on Form 10-K, including specifically but without limitation, power and authority to sign for us or any of us in our names in the capacities indicated below, any and all amendments (including post-effective amendments) hereto; and we do hereby ratify and confirm all that said attorney-in-fact and agent, shall do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and the capacities and on the dates indicated.

	Signature		Title	Date

/s/	Paul R. Ryan		Chairman of the Board and	~~March 14, 2008~~February 26, 2009
	Paul R. Ryan		Chief Executive Officer
			(Principal Chief Executive)

/s/ ~~Robert L. Harris, II~~	~~Director and President~~	~~March 14, 2008~~
Robert L. Harris, II		Director and President	February 26, 2009
	Robert L. Harris, II


/s/	Clayton J. Haynes		Chief Financial Officer and Treasurer	~~March 14, 2008~~February 26, 2009
	Clayton J. Haynes		(Principal Financial Officer)


/s/ ~~Fred A. de Boom~~	~~Director~~	~~March 14, 2008~~
Fred A. de Boom		Director	February 26, 2009
	Fred A. de Boom


/s/ ~~Edward W. Frykman~~	~~Director~~	~~March 14, 2008~~
Edward W. Frykman		Director	February 26, 2009
	Edward W. Frykman


/s/ ~~G. Louis Graziadio, III~~	~~Director~~	~~March 14, 2008~~
G. Louis Graziadio, III		Director	February 26, 2009
	G. Louis Graziadio, III


/s/	William S. Anderson		Director	~~March 14, 2008~~February 26, 2009
	William S. Anderson

3439

DELAWARE		95-4405754
(State or other jurisdiction of		(I.R.S. Employer
incorporation organization)		Identification No.)

500 NEWPORT CENTER DRIVE, NEWPORT BEACH, CA		92660
~~(Address~~(Address of principal executive offices)		(Zip Code)

Title of Each Class	Name of Each Exchange on Which Registered
~~Acacia Research - Acacia Technologies~~ Common Stock, $0.001 par value	The NASDAQ ~~Global~~Stock Market, LLC

Large accelerated filer ¨		Accelerated filer þ
Non-accelerated filer ¨ (Do not check if a smaller reporting company)		Smaller reporting company ¨

	For the Years Ended December 31,
	2008			2007			2006			2005			2004

License fee revenues	$	48,227		$	52,597		$	34,825		$	19,574		$	4,284
Marketing, general and administrative expenses (including non-cash stock compensation expense)		24,014			20,042			14,123			8,097			5,043
Inventor royalties and contingent legal fees expense - patents		27,424			29,224			17,159			11,331			-
Legal expenses - patents		4,949			7,024			4,780			2,468			3,133
Amortization of patents		6,043			5,583			5,313			4,922			501
Operating loss		(14,203	)		(9,511	)		(6,847	)		(7,244	)		(6,055	)
Other income, net		570			2,359			1,524			1,071			471
Loss from continuing operations before income taxes		(13,633	)		(7,152	)		(5,323	)		(6,173	)		(5,445	)
Loss from continuing operations		(13,757	)		(7,359	)		(5,363	)		(6,038	)		(5,439	)
Discontinued operations - Split-off of CombiMatrix Corporation and other		-			(8,086	)		(20,093	)		(12,638	)		606
Net loss	$	(13,757	)	$	(15,445	)	$	(25,456	)	$	(18,676	)	$	(4,833	)

Loss per common share - basic and diluted:
Loss from continuing operations
Acacia Research Corporation common stock	$	(0.47	)	$	(0.26	)	$	(0.19	)	$	(0.23	)	$	(0.27	)
Discontinued operations - Split-off of CombiMatrix Corporation
Acacia Research - CombiMatrix stock	$	-		$	(0.14	)	$	(0.49	)	$	(0.37	)	$	0.02
Weighted average number of common and potential common shares used in computation of income (loss) per common share
Acacia Research Corporation common stock:
Basic and diluted		29,423,998			28,503,314			27,547,651			26,630,732			19,784,883
Acacia Research - CombiMatrix stock:
Basic		-			55,862,707			40,605,038			33,678,603			29,962,596
Diluted		-			55,862,707			40,605,038			33,678,603			30,995,663

	2007								2006
	Fourth Quarter		Third Quarter		Second Quarter		First Quarter		Fourth Quarter		Third Quarter		Second Quarter		First Quarter

Acacia Research-Acacia Technologies stock:
High	$	17.92	$	16.75	$	16.84	$	16.56	$	15.58	$	14.95	$	14.65	$	9.00
Low	$	8.42	$	10.87	$	12.76	$	12.23	$	11.05	$	9.31	$	8.85	$	6.65

Acacia Research-CombiMatrix stock(1):
High		N/A	$	0.74	$	0.81	$	1.85	$	1.07	$	1.68	$	2.75	$	2.90
Low		N/A	$	0.57	$	0.50	$	0.58	$	0.70	$	0.96	$	1.45	$	1.34

	2003		2004		2005		2006		2007

AR-Acacia Technologies stock	$	226	$	220	$	286	$	555	$	373
AR-CombiMatrix stock	$	92	$	109	$	38	$	22	$	16	*
Nasdaq Composite Index	$	150	$	163	$	165	$	181	$	199
Nasdaq Biotech Index	$	146	$	155	$	159	$	161	$	168

Plan Category	(a) Number of securities to be issued upon exercise of outstanding options	(b) Weighted-Average exercise price of outstanding options	(c) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
Equity compensation plans approved by security holders
2002 Acacia Technologies Stock Incentive Plan(1)	4,919,000	$8.45	18,000
2007 Acacia Technologies Stock Incentive Plan(2)	50,000	$16.01	171,000
Subtotal	4,969,000	$8.52	189,000
Equity compensation plans not approved by security holders(3)	N/A	N/A	N/A
Total	4,969,000	$8.52	189,000

	At December 31,													At December 31,
	2007		2006			2005		2004			2003			2008		2007		2006			2005		2004
Total assets:
Acacia Research Corporation	$	71,051	$	65,770		$	68,893	$	33,058		$	39,978		$	73,074	$	71,051	$	65,770		$	68,893	$	33,058
Discontinued operations - Split-off of CombiMatrix Corporation		-		44,214			52,541		55,388			50,161			-		-		44,214			52,541		55,388
Eliminations		-		(380	)		-		(119	)		(99	)		-		-		(380	)		-		(119	)
Total	$	71,051	$	109,604		$	121,434	$	88,327		$	90,040		$	73,074	$	71,051	$	109,604		$	121,434	$	88,327
Total liabilities:
Acacia Research Corporation	$	6,247	$	4,276		$	6,647	$	3,472		$	4,188		$	14,527	$	6,247	$	4,276		$	6,647	$	3,472
Discontinued operations - Split-off of CombiMatrix Corporation		-		11,399			7,443		8,560			24,424			-		-		11,399			7,443		8,560
Eliminations		-		(380	)		-		(119	)		(99	)		-		-		(380	)		-		(119	)
Total	$	6,247	$	15,295		$	14,090	$	11,913		$	28,513		$	14,527	$	6,247	$	15,295		$	14,090	$	11,913
Minority interests:
Acacia Research Corporation	$	-	$	-		$	443	$	778		$	1,127		$	-	$	-	$	-		$	443	$	778
Discontinued operations - Split-off of CombiMatrix Corporation		-		-			4		-			-			-		-		-			4		-
Total	$	-	$	-		$	447	$	778		$	1,127		$	-	$	-	$	-		$	447	$	778
Stockholders' equity:
Acacia Research Corporation	$	64,804	$	61,494		$	61,803	$	28,808		$	34,663		$	58,547	$	64,804	$	61,494		$	61,803	$	28,808
Discontinued operations - Split-off of CombiMatrix Corporation		-		32,815			45,094		46,828			25,737			-		-		32,815			45,094		46,828
Total	$	64,804	$	94,309		$	106,897	$	75,636		$	60,400		$	58,547	$	64,804	$	94,309		$	106,897	$	75,636

	2007 vs. 2006			2006 vs. 2005

Increase in personnel expenses	$	2,767		$	1,247
Increase (decrease) in GPH Acquisition related consulting expenses		(925	)		96
One-time severance charge for employee separation		360			-
Increase in foreign taxes paid on licensing fees		125			6
Increase in accounting and other professional fees		141			392
Increase in patent development / commercialization and other		1,021			92
Increase in office and facilities and other marketing, general and administrative costs		468			603
Increase in non-cash stock compensation expense		1,962			3,590

	Payments Due by Period (In thousands)														Payments Due by Period (In thousands)
Contractual Obligations		Total		2008		2009		2010		2011		2012		2013 and Thereafter	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years

Operating leases	$	3,850	$	868	$	903	$	939	$	977	$	163	$	-	$	2,945	$	858	$	1,923	$	164		-
Total contractual obligations	$	3,850	$	868	$	903	$	939	$	977	$	163	$	-	$	2,945	$	858	$	1,923	$	164		-

	December 31,			December 31,
	2007			2006			December 31,			December 31,
							2008			2007
ASSETS

Current assets:
Cash and cash equivalents	$	40,467		$	32,215		$	48,279		$	40,467
Short-term investments		10,966			12,783			-			10,966
Accounts receivable		1,409			269			7,436			1,409
Prepaid expenses and other current assets		1,356			1,187			1,255			1,356
Total current assets related to discontinued operations - Split-off of CombiMatrix Corporation		-			15,552

Total current assets		54,198			62,006			56,970			54,198

Property and equipment, net of accumulated depreciation		323			221			221			323
Patents, net of accumulated amortization		16,307			18,515			12,419			16,307
Investments - noncurrent								3,239			-
Other assets		223			200			225			223
Total non-current assets related to discontinued operations - Split-off of CombiMatrix Corporation		-			28,662

	$	71,051		$	109,604		$	73,074		$	71,051

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Accounts payable and accrued expenses	$	3,462		$	2,201		$	3,240		$	3,462
Royalties and contingent legal fees payable		2,343			1,684			10,770			2,343
Deferred revenues		321			360			318			321
Total current liabilities related to discontinued operations - Split-off of CombiMatrix Corporation		-			3,211

Total current liabilities		6,126			7,456			14,328			6,126

Other liabilities		121			31			199			121
Total non-current liabilities related to discontinued operations - Split-off of CombiMatrix Corporation		-			7,808

Total liabilities		6,247			15,295			14,527			6,247

Commitments and contingencies (Note 12)

Redeemable stockholders' equity:
Preferred stock
Acacia Research Corporation, par value $0.001 per share; 10,000,000 shares authorized;
no shares issued or outstanding		-			-
Common stock
Acacia Research - Acacia Technologies stock, par value $0.001 per share; 100,000,000
shares authorized; 28,231,701 shares issued and outstanding as of December 31, 2006		-			28
Acacia Research - CombiMatrix stock, par value $0.001 per share; 100,000,000 shares
authorized; 50,365,810 shares issued and outstanding as of December 31, 2006		-			50
Stockholders' equity:
Preferred stock, par value $0.001 per share; 10,000,000 shares authorized; no shares issued or outstanding								-			-
Common stock, par value $0.001 per share; 100,000,000 shares authorized; 30,884,994 and 30,102,482 shares issued and outstanding as of December 31, 2008 and December 31, 2007, respectively								31			30
Additional paid-in capital					326,599			167,468			159,972
Accumulated comprehensive income					2			-			(3	)
Accumulated deficit					(232,370	)		(108,952	)		(95,195	)

Stockholders' equity:
Preferred stock
Acacia Research Corporation, par value $0.001 per share; 10,000,000 shares authorized;
no shares issued or outstanding		-			-
Common stock
Acacia Research - Acacia Technologies stock, par value $0.001 per share; 100,000,000
shares authorized; 30,102,482 shares issued and outstanding as of December 31, 2007		30			-
Additional paid-in capital		159,972			-
Accumulated comprehensive income		(3	)		-
Accumulated deficit		(95,195	)		-

Total stockholders' equity		64,804			94,309			58,547			64,804
							$	73,074		$	71,051
	$	71,051		$	109,604


	AR-Acacia		AR-		AR-Acacia		AR-
	Technologies		CombiMatrix		Technologies		CombiMatrix
	Redeemable		Redeemable		Redeemable		Redeemable		Additional			Deferred			Other
	Common		Common		Common		Common		Paid-in			Stock			Comprehensive			Accumulated
	Shares		Shares		Stock		Stock		Capital			Compensation			Income (Loss)			Deficit			Total


2005
Balance at December 31, 2004		19,811,524		31,200,496	$	20	$	31	$	263,900		$	-		$	(77	)	$	(188,238	)	$	75,636
Net loss																			(18,676	)		(18,676	)
Stock options exercised		133,986		5,555						315												315
Stock issued for the acquisition of Global Patent Holdings, net of registration costs (Note 7)		3,938,832				4				19,289												19,293
Units issued in direct offering, net offering costs		3,500,000		7,786,351		4		8		32,244												32,256
Warrant liability										(2,194	)											(2,194	)
Deferred stock compensation		337,900								1,713			(1,713	)								-
Compensation expense relating to stock options										(121	)		313									192
Unrealized gain on short-term investments																2						2
Unrealized gain on foreign currency translation																73						73

Balance at December 31, 2005		27,722,242		38,992,402	$	28	$	39	$	315,146		$	(1,400	)	$	(2	)	$	(206,914	)	$	106,897

2006
Net loss																			(25,456	)		(25,456	)
Stock options exercised		389,959								1,475												1,475
Units issued in direct offering, net offering costs				11,323,408				11		12,098												12,109
Warrant liability										(7,104	)											(7,104	)
Reclassification of deferred stock compensation (see Note 2)										(1,400	)		1,400									-
Stock issued to consultant				50,000						94												94
Compensation expense relating to stock options and restricted stock awards		119,500								6,306												6,306
Unrealized gain on short-term investments																61						61
Unrealized loss on foreign currency translation																(57	)					(57	)
Other				-				-		(16	)											(16	)

Balance at December 31, 2006		28,231,701		50,365,810	$	28	$	50	$	326,599		$	-		$	2		$	(232,370	)	$	94,309

	AR-Acacia Technologies Common Shares (1)		AR-CombiMatrix Common Shares (1)			AR-Acacia Technologies Common Stock (1)		AR-CombiMatrix Common Stock (1)			Additional Paid-in Capital			Deferred Stock Compensation			Other Comprehensive Income (Loss)			Accumulated Deficit			Total
2006
Balance at December 31, 2005		27,722,242		38,992,402		$	28	$	39		$	315,146		$	(1,400	)	$	(2	)	$	(206,914	)	$	106,897
Net loss		-		-			-		-			-			-			-			(25,456	)		(25,456	)
Stock options exercised		389,959		-			-		-			1,475			-			-			-			1,475
Units issued in direct offering, net offering costs		-		11,323,408			-		11			12,098			-			-			-			12,109
Warrant liability		-		-			-		-			(7,104	)		-			-			-			(7,104	)
Reclassification of deferred stock compensation (see Note 2)		-		-			-		-			(1,400	)		1,400			-			-			-
Stock issued to consultant		-		50,000			-		-			94			-			-			-			94
Compensation expense relating to stock options and restricted stock awards		119,500		-			-		-			6,306			-			-			-			6,306
Unrealized gain on short-term investments		-		-			-		-			-			-			61			-			61
Unrealized loss on foreign currency translation		-		-			-		-			-			-			(57	)		-			(57	)
Other		-		-			-		-			(16	)		-			-			-			(16	)
Balance at December 31, 2006		28,231,701		50,365,810			28		50			326,599			-			2			(232,370	)		94,309

2007
Activities related to continuing operations:
Net loss from continuing operations		-		-			-		-			-			-			-			(7,359	)		(7,359	)
Stock options exercised		1,062,513		-			1		-			5,013			-			-			-			5,014
Compensation expense relating to stock options and restricted stock awards		808,268		-			1		-			5,908			-			-			-			5,909
Unrealized loss on short-term investments		-		-			-		-			-			-			(21	)		-			(21	)
Other		-		-			-		-			-			-			-			(55	)		(55	)

Activities related to discontinued operations- Split-off of CombiMatrix Corporation:
Loss from discontinued operations- Split-off of CombiMatrix Corporation		-		-			-		-			-			-			-			(8,086	)		(8,086	)
Stock options and warrants exercised and units issued in direct offering, net offering costs		-		9,203,959			-		10			480			-			-			-			490
Compensation expense relating to stock options		-		-			-		-			726			-			-			-			726
Warrant liability		-		-			-		-			9,089			-			-			-			9,089
Stock issued to consultant		-		306,000			-		-			208			-			-			-			208
Unrealized gain on short-term investments		-		-			-		-			-			-			13			-			13
Other		-		-			-		-			11			-			-			-			11
Discontinued operations - Split-off of CombiMatrix Corporation		-		(59,875,769	)		-		(60	)		(188,062	)		-			3			152,675			(35,444	)
Balance at December 31, 2007		30,102,482		-			30		-			159,972			-			(3	)		(95,195	)		64,804

2008
Net loss		-		-			-		-			-			-			-			(13,757	)		(13,757	)
Stock options exercised		38,079		-			-		-			142			-			-			-			142
Compensation expense relating to stock options and restricted stock awards		744,433		-			1		-			7,354			-			-			-			7,355
Unrealized gain on short-term investments		-		-			-		-			-			-			3			-			3
Balance at December 31, 2008		30,884,994		-		$	31	$	-		$	167,468		$	-		$	-		$	(108,952	)	$	58,547

	AR-Acacia Technologies Common Shares		AR- CombiMatrix Common Shares			AR-Acacia Technologies Common Stock		AR- CombiMatrix Common Stock			Additional Paid-in Capital			Deferred Stock Compensation		Other Comprehensive Income (Loss)			Accumulated Deficit			Total
2007
Activities related to continuing operations:
Net loss from continuing operations																				(7,359	)		(7,359	)
Stock options exercised		1,062,513					1					5,013											5,014
Compensation expense relating to stock options and restricted stock awards		808,268					1					5,908											5,909
Unrealized loss on short-term investments																	(21	)					(21	)
Other																				(55	)		(55	)

Activities related to discontinued operations - Split-off of CombiMatrix Corporation:
Loss from discontinued operations - Split-off of CombiMatrix Corporation																				(8,086	)		(8,086	)
Stock options and warrants exercised and units issued in direct offering, net offering costs				9,203,959					10			480											490
Compensation expense relating to stock options												726											726
Warrant liability												9,089											9,089
Stock issued to consultant				306,000								208											208
Unrealized gain on short-term investments																	13						13
Other												11											11
Discontinued operations - Split-off of CombiMatrix Corporation				(59,875,769	)				(60	)		(188,062	)				3			152,675			(35,444	)

Balance at December 31, 2007		30,102,482		-		$	30	$	-		$	159,972		$	-	$	(3	)	$	(95,195	)	$	64,804

	Furniture and fixtures	3 to 5 years
	Computer hardware and software	3 to 5 years
	Leasehold improvements	2 to 5 years (Lesser of lease term or useful life of improvement)

	For the Year Ended
	December 31,
	2007	2006

Risk Free Interest Rate	4.64%	4.30%
Term	5.71 years	6 years
Volatility	68%	75%

Loss from continuing operations, as reported	$	(6,038	)
Add: Stock-based compensation, intrinsic value method reported in net loss		356
Deduct: Pro forma stock-based compensation fair value method		(2,103	)
Loss from continuing operations, pro forma	$	(7,785	)

Basic and diluted loss per share from continuing operations, as reported	$	(0.23	)
Basic and diluted loss per share from continuing operations, pro forma	$	(0.29	)

Weighted Average Assumptions used(1):
Risk free interest rate		3.90%
Volatility		91%
Expected term	5 years

	For the Year Ended December 31,
	2007		2006		2005
Acacia Research - Acacia Technologies stock

Basic and diluted weighted average number of common shares outstanding		28,503,314		27,547,651		26,630,732

All outstanding stock options and nonvested restricted stock excluded from the computation of
diluted loss per share because the effect of inclusion would have been anti-dilutive		5,884,934		6,385,810		6,315,000

Acacia Research - CombiMatrix stock - Discontinued Operations - Split-off of CombiMatrix Corporation (1)

Basic and diluted weighted average number of common shares outstanding		55,862,707		40,605,038		33,678,603

Outstanding stock options excluded from the computation of diluted loss per share
because the effect of inclusion would have been anti-dilutive		7,003,390		8,068,139		6,925,000

Warrants excluded from the computation of diluted loss per share because
the option exercise price was greater than the average market price of the common shares		23,838,648		14,090,279		1,879,888

	2007				2006
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
Available-for-sale securities:
Corporate and municipal bonds and notes	$	-	$	-	$	975	$	1,000
Auction rate securities		10,660		10,660		7,288		7,288
U.S. government securities		300		300		4,502		4,495
Corporate securities		9		6		-		-
	$	10,969	$	10,966	$	12,765	$	12,783

	2007		2006

Accounts payable	$	361	$	150
Payroll and other employee benefits		371		223
Accrued vacation		365		286
Accrued legal expenses - patent		2,082		1,131
Accrued consulting and other professional fees		108		371
Other accrued liabilities		175		40
	$	3,462	$	2,201

	2007			2006

Gross carrying amount – patents	$	33,607		$	30,317
Accumulated amortization		(17,300	)		(11,802	)
Patents, net	$	16,307		$	18,515


Purchase Consideration:
Cash paid	$	5,000
Fair value of AR-Acacia Technologies stock issued		19,293
Acquisition and registration costs		812
Total purchase consideration	$	25,105

Purchase Price Allocation:
Fair value of net tangible assets acquired at January 28, 2005	$	(26	)
Intangible assets acquired - patents and patent rights		25,131
Total	$	25,105

		Fair Value Measurements at Reporting Date Using:
	Balance at	Quoted Prices in Active Markets For Identical Assets	Significant Other Observable Inputs	Significant Unobservable Inputs
Description	December 31, 2008	(Level 1)	(Level 2)	(Level 3)

Auction rate securities	$ 3,239	-	-	$ 3,239

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)

Auction rate securities:
Balance at December 31, 2007	$	-
Transfers to Level 3		6,000
Total gains or (losses) (realized or unrealized):
Included in earnings		(486	)
Included in other comprehensive income		-
Purchases and settlements (net)		(2,275	)
Balance at December 31, 2008	$	3,239

	2007		2006

Deferred tax assets:
Basis in affiliates	$	495	$	495
Depreciation and amortization		3,632		2,292
State taxes		3		-
Deferred revenue		127		142
Stock compensation		2,451		1,672
Accrued liabilities and other		153		140
Write-off of investments		1,344		1,250
Net operating loss and capital loss carryforwards and credits		22,938		22,075

Total deferred tax assets		31,143		28,066

Less: valuation allowance		(30,816	)		(27,562	)

Net deferred tax assets, net of valuation allowance		327			504

Deferred tax liabilities:
Intangibles		(327	)		(504	)

Net deferred tax liability	$	-		$	-

	~~December 31, 2006~~

~~Cash and available-for-sale investments~~		~~14,342~~
~~Accounts receivable, inventory and other asset~~		~~1,210~~
~~Property and equipment, net of accumulated depreciation~~		~~1,785~~
~~Intangible assets and goodwill~~		~~24,210~~
~~Other assets~~		~~2,667~~
~~Accounts payable and accrued expenses~~		~~(2,846~~	)
~~Deferred revenues~~		~~(1,441~~	)
~~Warrant liability~~		~~(6,732~~	)

	Revenues		Pre-tax Loss
For the year ended December 31, 2006		5,740		(20,127	)
For the year ended December 31, 2005		8,033		(12,568	)

		Weighted-Average
			Remaining	Aggregate
	Options	Exercise Price	Contractual Term	Intrinsic Value

Outstanding at December 31, 2006	5,958,000	$7.93
Granted	300,000	$14.20
Exercised	(1,063,000)	$4.72
Forfeited	(226,000)	$18.20
Outstanding at December 31, 2007	4,969,000	$8.52	4.8 years	$14,528,000
Vested and expected to vest at December 31, 2007	4,956,000	$8.52	4.8 years	$14,518,000
Exercisable at December 31, 2007	4,577,000	$8.32	4.5 years	$14,197,000

				Weighted-Average
	Options			Exercise Price		Remaining Contractual Term	Aggregate Intrinsic Value

Outstanding at December 31, 2007		4,969,000		$	8.52
Exercised		(38,000	)	$	3.74
Forfeited		(52,000	)	$	14.93
Canceled		(1,223,000	)	$	17.28
Outstanding at December 31, 2008		3,656,000		$	5.55	4.6 years	$	739,000
Vested and expected to vest at December 31, 2008		3,654,000		$	5.55	4.6 years	$	739,000
Exercisable at December 31, 2008		3,541,000		$	5.40	4.5 years	$	739,000

	Nonvested Restricted Shares			Weighted Average Grant Date Fair Value

Nonvested restricted stock at December 31, 2006		428,000			$7.10
Granted		846,000			$14.04
Vested		(324,000	)		$6.04
Forfeited		(35,000	)		$6.22
Nonvested restricted stock at December 31, 2007		915,000			$13.92

	Nonvested Restricted Shares			Weighted Average Grant Date Fair Value

Nonvested restricted stock at December 31, 2007		912,000		$	13.93
Granted		966,000		$	4.80
Vested		(400,000	)	$	13.90
Forfeited		(221,000	)	$	9.13
Nonvested restricted stock at December 31, 2008		1,257,000		$	7.77

	Restricted Stock Units			Weighted Average Grant Date Fair Value

Restricted stock units outstanding at December 31, 2007		3,000		$	11.19
Granted		12,000		$	8.68
Vested		(4,000	)	$	9.32
Restricted stock units outstanding at December 31, 2008		11,000		$	9.10

Year
2008	$	868
2009		903
2010		939
2011		977
2012		163
Total minimum lease payments	$	3,850