Acacia Research Corp. - Acacia Technologies Q4 2009 Earnings Call Transcript

Feb.18.10 | About: Acacia Research (ACTG)

Acacia Research Corp. - Acacia Technologies (NASDAQ:ACTG)

Q4 2009 Earnings Call

February 18, 2010 05:00 pm ET

Executives

Paul Ryan - Chairman & CEO

Clayton Haynes - CFO

Analysts

Jonathan Skeels - Davenport

Mark Argento - Craig-Hallum Capital

Bennett Notman - Wisco

Operator

Good afternoon, and welcome, ladies and gentlemen, to the Acacia Research fourth quarter earnings release conference call. At this time, I would like to inform you that this conference is being recorded and that all participants are in a listen-only mode. At the request of the company, we will open the conference up for questions and answers after the presentation.

I will now turn the conference over to Mr. Paul Ryan. Please go ahead, sir.

Paul Ryan

Thank you for being with us today. Today's call may involve what the SEC considers to be forward-looking statements. Please refer to our 8-K, which was filed with the SEC today for our forward-looking statement disclaimer.

In today's call, the terms we, us and our, refer to Acacia Research Corporation and it's fully owned and majority owned operating subsidiaries. All intellectual property acquisitions, development, licensing and enforcement activities are conducted solely by certain of Acacia Research Corporation’s wholly and majority owned operating subsidiaries. With us today are Chip Harris, President of Acacia; Dooyong Lee, Executive Vice President; and Clayton Haynes, our Chief Financial Officer.

Today, I will give you an overview of the progress we are making in building the business, and Clayton Haynes will provide you with an analysis of our financial results. We will then open the call for questions.

Acacia Research revenues for 2009 were a record $67.3 million, up 40% compared to $48.2 million in 2008. Acacia subsidiaries partnered with patent owners and acquired control of 30 new patent portfolios during 2009 for future licensing. We ended the year with over a 138 patent portfolios. We began generating revenue from 12 new licensing programs in 2009 and have now generated revenues from 60 different licensing programs.

Acacia's fourth quarter revenues were $19.9 million, our second highest revenue quarter to date compared to $18.3 million in the year ago period. During the fourth quarter, Acacia generated revenues from 32 new licensing agreements covering 21 different technologies, including initial revenues from four new licensing programs.

Cash and investments increased during the quarter by $8.6 million to $53.9 million at the end of the year. Acacia's net loss decreased $11.3 million in 2009 compared to $13.8 million in the prior year. Non cash charges were $11.7 million compared to $13.4 million in the prior year.

With a significantly increased level of business activity in 2009, we were able to keep our MG&A expenses at the same level as the prior year. We did increase our litigation and licensing related expenses which we view as an investment in generating future revenues.

We were also able to slightly improve our gross operating margins during the year. During 2009, two of our subsidiaries received jury verdicts in trials. Our creative internet advertising subsidiary received a favorable jury verdict against Yahoo! and has received a $12.4 million final judgment including enhanced damages for local infringement and an award of post verdict on going royalty rate of 23%.

We have not recognized any revenue from this court award and are waiting the likely appeal by Yahoo!. Our DMT subsidiary received an unfavorable jury verdict in its trial and we are considering an appeal once the post trial briefing has been completed. We began 2010 with the largest number of licensing opportunities in our history. We expect continued growth in new licensing programs and in expansion of many of our current licensing programs during the year.

Our successful track record of completing 740 licensing agreements covering 60 different technologies is continuing to generate interest from technology companies, universities and research centers wanting to partner with us and have us take over the licensing of their patented technologies. We have also begun to expand our patent licensing business by partnering with large companies for the first time. We have entered into six recent agreements covering patents issued to major technology companies.

We expect this will become an increasingly important part of our business as large companies look to monetize their patent assets. With that, I would like to turn the call over to our Chief Financial Officer, Clayton Haynes.

Clayton Haynes

Thank you, Paul, and thank you to everyone joining us for today's fourth quarter and year end 2009 earnings conference call. As indicated in today's earnings press release, on a consolidated basis, fourth quarter 2009 license fee revenues totaled $19,858,000 as compared to $18,267,000 in the fourth quarter of 2008.

Fourth quarter 2009 revenues included license fees from 32 new licensing agreements covering 21 of our technology licensing programs as compared to 20 new licensing agreements covering 15 of our technology licensing programs in the fourth quarter of 2008.

Fourth quarter 2009 revenues included initial license fee revenues for our multi-dimensional database compression technology, document generation technology, internet radio advertising technology and virtual server technology. For a summary of additional technology licensing programs generating revenues during the fourth quarter of 2009, please refer to today's press release and 8-K filed with the SEC.

Currently on a consolidated basis, our operating subsidiaries have generated revenues from 60 of our technology licensing programs. License fee revenues continue to fluctuate from period to period based on the various factors discussed on previous earnings conference calls and in our periodic filings with the SEC.

Consolidated trailing 12 months revenues totaled $67.3 million as of the December 31, 2009 as compared to $65.7 million at September 30, 2009; $63.4 million as of June 30, 2009; and $56.1 million as of March 31, 2009 and $48.2 million as of December 31, 2008.

While I am discussing revenues for the quarter, I would like to briefly discuss a change in accounting policy that was made during the fourth quarter of 2009. Effective October 1, 2009, Acacia elected to change its method of accounting for its term license agreements, to recognize revenue when delivery of a license has occurred which is typically at the time of execution of the related license agreement or upon receipt of the applicable annual upfront renewal license fee payment and when all other revenue recognition criteria have been met.

Prior to the change in method of accounting, license fees for term license agreements were deferred and amortized to revenue on a straight line basis over the applicable contractual license term. The new method was adopted as it provides a consistent approach to accounting for all of our license arrangements with similar significant terms and conditions and more closely reflects the combination of the earnings process associated with these revenue arrangements.

We have requested and will receive a preferability letter from our independent registered public accounting firm Grant Thornton stating that the change in accounting is preferable given the nature of our term license agreements. In accordance with item 601B of regulation SK, we expect to file Grant Thornton’s preferability letter as an exhibit to our 2009 annual report on Form 10k.

The change in accounting was accounted for through retrospective application of the new accounting policy as of January 1, 2009. The effect of applying the new accounting policy to term licenses in periods prior to fiscal 2009 was not material. Accordingly our consolidated financial statements for years ending prior to January 1, 2009 have not been retroactively adjusted for this change in accounting policy.

A table detailing the effect of the change in accounting policy on our consolidated financial statement line items for the first, second and third quarters of 2009 is included in our earnings press release and 8-K filed with the SEC earlier today.

Moving on with the summary of results for the fourth quarter of 2009, our average margin defined as gross license fees less inventor royalties and payments to non controlling interest and contingent legal fees for the portfolios generating revenues during the period was approximately 42% for the fourth quarter of 2009 as compared to 43% for the fourth quarter of 2008.

As a reminder, you will need to include the net income attributable to non controlling interest in operating subsidiaries line item in the income statement to compute the average gross margin for the 3 and 12 months ended December 31, 2009.

Net income attributable to non controlling interest in operating subsidiaries represents the portion of net proceeds from the licensing and enforcement activities of one of our majority owned operating subsidiaries that are distributable to the operating subsidiaries non-controlling interest holders.

Average margins continued to fluctuate period-to-period based on the mix of patent portfolio that generates revenue each period and the related economics associated with the underlying inventor agreements and contingent legal fee arrangements if any.

For the fourth quarter of 2009, Acacia Research reported a GAAP net loss from operations of $4.7 million or $0.15 a share versus a loss of $1.8 million or $0.06 a share in the fourth quarter of 2008 as illustrated in today's press release and related 8-K filed with the SEC.

Excluding the impact of non-cash patent ammonization charges and non-cash stock compensation charges totaling $2.8 million, we reported a fourth quarter 2009 net loss of $1.9 million compared to net income of $2.1 million excluding non-cash charges of $4 million for the fourth quarter of 2008.

Inventor royalties expense and payments to non-controlling interest for the fourth quarter of 2009 totaled $6.1 million as compared to $6.4 million in the prior year period. Contingent legal fees for the fourth quarter of 2009 were $5.4 million as compared to $3.9 million in the prior year period.

In the aggregate, inventor royalties, non-controlling interests in operating subsidiaries and contingent legal fees expense on a combined basis increased 12% during the fourth quarter of 2009 as compared to the fourth quarter of 2008 consistent with the 9% increase in license fee revenues recognized for the same period.

Contingent legal fees expenses increased 38% during the fourth quarter of 2009 as compared to the fourth quarter of 2008 due to certain patent portfolios with lower contingent fee rates generating revenues during the fourth quarter of 2008 as compared to patent portfolios generating revenues in the fourth quarter of 2009.

In the aggregate, inventory royalties and non-controlling interest and operating subsidiaries decreased 5% during the fourth quarter of 2009 as compared to the fourth quarter of 2008 due to certain patent portfolios with lower royalty rates generating revenues during the fourth quarter of 2009 as compared to patent portfolio generating revenues in the comparable 2008 period.

Fourth quarter 2009 marketing, general and administrative expenses including non-cash stock compensation increased to $5,235,000 from $4,828,000 in the comparable 2008 period. Excluding the impact of the decrease in non-cash stock compensation, marketing, general and administrative expenses increase 554,000 in the fourth quarter of 2009 as compared to the prior year period, primarily due to an increase in personnel related costs and an increase in corporate, general and administrative costs.

Fourth quarter 2009 litigation and licensing expenses were $5,637,000 versus $2,234,000 in the comparable 2008 period. Litigation and licensing expenses include patent related prosecution and enforcement costs incurred by outside patent attorneys engaged on an hourly basis and the out of pocket expenses incurred by law firms engaged on a contingent fee basis.

Litigation and licensing expenses also includes licensing and enforcement related third party patent research, development, consulting and other costs incurred in connection with the licensing and enforcement of our patent portfolios.

Litigation and licensing 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.

The increase in litigation and licensing expenses is due to an increase in litigation and licensing support related out of pocket expenses, third party technical consulting expenses, professional expert expenses and other litigation support and administrative costs incurred in connection with our investment in certain of our licensing and enforcement programs that went to trial and concluded in 2009, licensing and enforcement programs with trial date scheduled for 2010 and a net increase in costs related to new licensing and enforcement programs commenced since the end of the year period. We expect litigation and licensing expenses to continue to fluctuate period to period in connection with upcoming schedule trial dates and our current and future patent acquisition development licensing and enforcement activities.

Business development related research consulting and other expenses for the fourth quarter of 2009 were $516,000 as compared to $221,000 in the fourth quarter of 2008. These costs fluctuate period to period based on business development related activities in each period.

Patent portfolio acquisition cost for the fourth quarter of 2009 totaled $463,000 as compared to $381,000 during the comparable 2008 period. During the fourth quarter of 2009, our operating subsidiaries acquired a total of five additional patent portfolios with applications in the micro electro mechanical or MEMs technology area, digital single processing architecture technology area, software installation technology area and distributed data management and synchronization technology area.

Next I would like to provide a brief summary of the results for the full fiscal year ended December 31, 2009. As Paul indicated, fiscal 2009 license fee revenues were $67.3 million as compared to $48.2 million in 2008. 2009 revenues included license fees from 117 new licensing agreements covering 30 of our technology licensing programs, including initial license fee revenues from 12 technology licensing programs.

Our average margin for 2009 was approximately 45% as compared to 43% for 2008. Inventor royalties expenses for 2009 and 2008 were $15,673,000 and $14,995,000 respectively. In addition, in 2009, net income, attributable to non controlling interest in operating subsidiaries totaled $5,657,000.

Contingent legal fees expenses for 2009 and 2008 were $15,945,000 and $12,429,000 respectively. In the aggregate, inventor royalties, non controlling interest and operating subsidiaries and contingent legal fees expense on a combined basis increased 36% during 2009 as compared to 2008, consistent with a 40% increase in license fee revenues recognized for the same period.

We reported a fiscal 2009 GAAP net loss from continuing operations of $11.3 million or $0.38 a share versus $13.8 million or $0.47 a share in 2008 as illustrated in our comparative income statements provided in today's press release and related 8-K filed with the SEC.

Excluding the impact of non cash pattern amortization charges and non cash stock compensation charges totaling $11.7 million, results from operations for 2009 were approximately break even. Excluding non cash charges of $13.4 million in 2008, 2008 results from operations were also approximately breakeven.

Marketing, general and administrative expenses for 2009 including non-cash stock compensation charges decreased to $21,070,000 from $21,130,000 in the comparable 2008 period. Excluding the impact of the decrease in non-cash stock compensation charges, marketing general and administrative expenses remained relatively flat year-to-year.

Litigation and licensing expenses for 2009 were $14,055,000 versus $6,900,000 in 2008. As mentioned earlier litigation and licensing 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.

The increase in litigation and licensing expenses in 2009 versus 2008 is due to an increase in litigation and litigation support related out of pocket expenses, third party technical consulting expenses, professional expert expenses and other litigation support and administrative costs incurred in connection with our investment in certain of our licensing and enforcement programs that went to trial and concluded in 2009, licensing and enforcement programs with trial date scheduled for 2010, and a net increase in costs related to new licensing and enforcement programs commenced since the end of the prior year period.

Looking forward, for fiscal 2010, we expect MG&A, excluding non cash stock compensation charges to be in the range of $14 million to $14.5 million. For fiscal 2010, based on the number of cases we have outstanding, and consideration of which of these cases may or are likely to settle, and given that a significant portion of cost related to these cases were incurred and expensed during mid to late 2009, we estimate that patent related litigation and licensing expenses incurred for 2010 will be less than the $14 million in expenses incurred during 2009. We will continue to assess our expectation with respect to the level of litigation and licensing cost for 2010 and we will provide you with quarterly updates to these expectations on future earnings conference calls.

Moving on to a summary of our financial position as of the end of 2009, total assets were $78.3 million as of December 31, 2009 compared to $73.1 million as of December 31, 2008. Cash and cash equivalents and investments totaled $53.9 million as of December 31, 2009 compared to $51.5 million as of December 31, 2008. Net cash inflows from operations including payments to non-controlling interest for the fourth quarter of 2009, totaled $9.2 million versus cash inflows of $6.8 million for the fourth quarter of 2008. Net cash inflows from operations, again including payments to non-controlling interest for 2009 totaled $13 million versus net cash inflows from operations of $2.6 million for 2008. Net cash inflows for the current quarter and full year reflects the impact of the timing of cash receipts from licensees and payments to inventors, contingent law firms and vendors period-to-period.

Accounts receivable from license fees totaled $5.1 million at December 31, 2009, compared to $7.4 million as of December 31, 2008. Accrued expenses including accrued inventor royalties and contingent legal fees totaled $20.4 million at December 31, 2009 compared to $14 million at December 31, 2008. This concludes our summary of the results for the fourth quarter of 2009 and the year ended December 31, 2009. Again, I thank you all for joining us for today's earnings conference call and I will now turn the call back over to Mr. Paul Ryan.

Paul Ryan

Thanks Clayton. And operator, can you open up the call for questions please?

Question-and-Answer Session

Operator

Thank you, sir. The question and answer session will begin. (Operator instructions).Our first question comes from the line of Jonathan Skeels of Davenport, please state your question.

Jonathan Skeels - Davenport

Hey guys, a couple of quick questions, first on the accounting change, there were only two term licenses signed in 2009, correct?

Clayton Haynes

The significant term license – yeah, there certainly were two significant term licenses that were signed during 2009. On of our portfolios, we do have a fair amount of additional term licenses but those would not be deemed to be significant term licenses.

Jonathan Skeels - Davenport

Okay. And then next I guess on the Oracle agreements that were signed toward the end of the quarter, I guess that was kind of the first time you have signed multiple agreements with one licensee kind of that one time. Is this something we should see more of going forward and are you seeing companies now looking to settle multiple suites at one time as opposed to may be handling them more on a kind of a case-by-case basis in the past, can you just talk about that?

Paul Ryan

Hi, Jonathan, this is Paul. I expect going forward that probably we will do a number of deals like that based on discussions we're currently having with companies. As we scale the business, obviously the more portfolios we have and the more matters that relate to certain companies. I think that increases that potential. Couple of years ago, when we only had one or two licensing programs that may affect a company, it was less likely. Now that in some cases where were have seven, eight, nine portfolios, it's much more likely that we will probably achieve multiple settlements simultaneously or within a confined timeframe with company, so I think that probably will be an increasing trend.

Jonathan Skeels - Davenport

And then I guess also kind of on that point, the licenses you signed with Microsoft earlier this year, one of them was settled fairly quickly from when you had originally acquired the portfolio, I think it was a little less than a year. Can you talk about whether or not you're seeing time to generating first revenue improving across the board or do you expect I guess to see that time to first revenue improve going forward?

Paul Ryan

It depends on the portfolio. Certainly, I think when we're settling multiple matters with an individual company, it’s probably going to be more likely in the future that some of those earlier stage portfolios may get sold at the same time. I think there is a growing dialog between our licensing people and some of the people at the companies that we're licensing that will probably facilitate that.

Jonathan Skeels - Davenport

And then one more and I'll let someone else on. You added 30 new portfolios during the year, I think that's up from 20 new portfolios in 2008. Can you talk about your expectations for 2010 and whether or not you think I guess that number will continue to kind of accelerate going forward?

Paul Ryan

Yes. I would think if anything, it would probably be above that level going forward. We're seeing an increased level of activity. So I certainly, if there is changes, it will probably be to the plus side.

Operator

(Operator instructions). Our next question comes from Mark Argento of Craig-Hallum Capital.

Mark Argento - Craig-Hallum Capital

Few questions around, kind of the size and scope of some new IP that you're bringing into the company. I know in the press release here, you talk about kind of the shift from smaller inventors to kind of midsize and now some larger tech companies in particular. The one that you allude to in the press release here today, is that the same one that you guys mentioned earlier in the press release, the Asian consumer electronics guy, or is this incremental to that announcement?

Paul Ryan

Well, I think what we put in the press release is there has been six recent licensing agreements that cover patents that were invented by major technology companies. So it’s not a singular one, but certainly some of the announcements we've made recently for much larger portfolios, I think one of them was 90 plus patents and applications and another one was 50 plus. Yes, there's definitely an increasing appetite for large technology companies to generate a return off their R&D. And I think they've seen companies like IBM and Qualcomm generate huge returns, and I think now there is a growing number of technology companies who want to achieve the same kind of returns for their shareholders. And fortunately, with our track record, we're an ideal outsource patent licensing company for them to go to.

So I think it will be an additional business. Our core business certainly has been the small companies and the individual inventors and universities and research centers, so certainly this is not to replace that. But in addition to that I think it will become an increasingly sizeable portion of our business and many of these portfolios are much deeper around core technologies these companies have developed. So, hopefully it may make it a little easier on the licensing side as well given the depth of the portfolios.

Mark Argento - Craig-Hallum Capital

Great, and in terms of activities in some of your competitors or collaborators and the buying clubs out there, how do you see your relationship relative to the buying clubs? And is that ultimately a potential source of business for you guys going forward as well?

Paul Ryan

Well, as the asset class continues to emerge, there's more business models building around it. And certainly as you are aware, we have done transactions with various buying clubs and we will continue to do so if it economically makes sense for us and our IP partners and then certainly I would expect going to be many cases where that will make sense. And so we -- we're in the business of licensing IP and to the degree there are new entities out there that are in the business of awarding licenses to Haiti [ph], we want to work with them.

So we think it's a very helpful trend and I think there may be opportunities to, alluding to the earlier question, where you could get multiple deals done with multiple companies simultaneously and, particularly, maybe even earlier stage portfolios. Obviously, as a public company, we're quite visible. The buying clubs and other entities are now monitoring our press releases relative to portfolios we're bringing in and quite frankly we are getting overtures on those at much earlier stages now, where companies individually and buying clubs are coming to us earlier, wanting to begin to negotiate prior to litigation, which that would be helpful because obviously we're short in time to money.

Mark Argento - Craig-Hallum Capital

That's an interesting trend. I know you guys reported some capital in 2009 of $8 million or $9 million; I don't have the exact number. But going forward, do you see that number going up, staying the same? What are your thoughts in terms of capital deployment for better economics?

Paul Ryan

It will probably stay about the same. Actually, we'll start with some companies where we would like to deploy some more capital. Once we get interested in a portfolio, I think a lot of companies then gear toward wanting less of our capital at a higher percentage on the back end quite frankly. Sometimes your success indicates that if we get interested in a portfolio, then oftentimes the negotiation is counter intuitive. Companies will want to take less cash up front and have a bigger back end.

So basically our normal deal is 50-50. If we can use capital to buy down points and on the other side, wants capital, we're more than happy to supply it. We think it's accretive to our shareholders. So there'll be cases where we will do that but I don't think it'll probably be out of the range of what we're doing currently.

Mark Argento - Craig-Hallum Capital

Sure, and any updates on the calendar for 2010, the court calendar? Any more visibility into some of the key cases? I know that the e911 or location based services, any visibility there in terms of when we could potentially see some court action there?

Paul Ryan

Well, the date is obviously based on motions move around quickly. I think maybe on a separate call, you know as a analyst, we can try to give you some guidance and some updates. But we're kind of hesitant because with the frequency of motions outstanding, certainly we've got a couple of cases that are near term, that look like they may go to trial, if not settled in April, which is the Google case on performance pricing. And then we've got another case with Red Hat and Novell basically which covers the original Xerox graphic user interface patents. So those are kind of the two nearest term but there are some motions right now and some discussions. So it will remain to be seen whether they get settled or go to trial. Those are the two nearest. But for a complete calendar, may be we can talk later ,today and you can kind of go over and do that, because it’s going to be time consuming.

Operator

Our next question comes from the line of Bennett Notman of Wisco. Please state your question.

Bennett Notman - Wisco

I guess first one for Clayton. Can you talk about maybe what the net impact of the accounting change was on the fourth quarter of 2009?

Clayton Haynes

Sure. Because the approach for applying the change in accounting was basically retroactive as of January 1, there was no net impact on the fourth quarter. Basically what happened, if you recall back to the first quarter and the third quarter conference call, we had a sizeable increase in deferred revenues related to some term licenses that we had executed during those timeframes. Basically, the impact of the accounting change during 2009 was basically to push back those revenues to the first quarter and basically the third quarter of 2009, hence no significant impact in the fourth quarter of 2009.

If you take a look at the table that was included in the press release today, it will show the specific impact on all of our financial statement line items for first quarter, second quarter, third quarter of 2009.

Paul Ryan

But all the revenue generated, the $19.9 million in the fourth quarter was all revenue generated in that quarter. There wasn't any…

Clayton Haynes

Correct. There was no impact of a change in accounting in the fourth quarter.

Paul Ryan

Okay, does that answer your question, Bennett?

Bennett Notman - Wisco

Yes. And I guess I was sort of thinking that had you not made the change, the fourth quarter might have been $1 million or $2 million higher just because of the allocations that they would have got from those prior term licenses that would have fallen in the fourth quarter.

Paul Ryan

Yes, there would have been some monies that would have come in the fourth quarter from those on an amortized basis.

Clayton Haynes

About 600,000 topline was the scheduled amortization. But to the extent, we are no longer amortizing those earlier deals, all of those revenues were pushed back to the previous quarters.

Bennett Notman - Wisco

And then just your comment on legal expense being down 2010, 2009, and I know it's hard to quantify it, but if we look at the legal calendar that you've got coming up, any ideas of what percentage of that investment you've already made? Because obviously the last couple quarters, legal expense has been running high, and if we're just paying in advance for what we're going to see in 2010, I'm just trying to get a feel for to what extent that's already happened?

Paul Ryan

A large portion of the expenses in the second half of 2009 apply to cases scheduled for 2010 because you bring on the experts and consultants, usually 6, 9 or 12 months in advance of trial dates. So a big chunk of those expenses have already occurred. And we going forward in 2010, all of our contingency cases, there is none that we are paying hourly for in 2010. So there is no direct charges, so it’s really all third party and consulting. So we expect there will be a significant decline year-over-year based on where we are now. And I would say roughly around the $10 million level, is probably realistic for 2010, which will be down $4 million from the last year.

Bennett Notman - Wisco

Okay, great. And then the 138 portfolio number that you guys report for the current active portfolios, is that net of any portfolios that have gone away because you've licensed everybody or that they might have lost in court, or you determined they're not (inaudible).

Paul Ryan

Yes, that's a net number. Yes, that’s a net number of active programs that can generate licensing revenue.

Bennett Notman - Wisco

And then last question, just your thoughts on what we should expect out of Yahoo. Will that be something that is likely to be a long, drawn-out affair? Is that something that is likely to be resolved in 2010? I know again, these are hard to talk to, but to the best of your ability.

Paul Ryan

Yeah, the schedule right now, we expect, I believe they have to file their appeal brief, if they are going to do so and we expect they will by April 19th. And then I believe we have 30 or 45 days to respond and then it gets on the calendar at the Fed circuit. So my guess would be it'll probably be sometime in the fall where the arguments would be heard and the determination would be made.

Operator

(Operator instructions). Our next question is a follow-up question from Jonathan Skeels with Davenport. Please state your question.

Jonathan Skeels - Davenport & Company

Could you talk about, obviously I guess in 2010 the court calendar is an active one and I assume that you are in the process of starting to schedule some court dates for 2011. I guess, do you have any sense as to how active that 2011 calendar will look compared to 2010?

Paul Ryan

I would say by the time we get to that area, probably about the same, based on the same level of activity. I think we're getting more or large companies wanting to engage and may be do multiple settlements. So but then you have to settle everybody, not to go to trial, but I would think many of these trials are going to wind up with only one remaining defendant. Oftentimes, the largest market share and the rest will be settled out, but I would expect probably about the same amount as we’ve got scheduled for 2010.

Operator

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

Paul Ryan

Okay, I want to thank you all for participating. If you have any specific questions, please feel free to give me and Clayton or Rob Stewart a call, and otherwise look forward to talking with you on our first quarter call. Thanks.

Operator

Ladies and gentlemen, if you wish to access the replay for this call, you may do so by dialing 800-642-1687 or 706-645-9291 with confirmation code 49908261. This concludes our conference for today. Thank you for participating and have a nice day. All parties may now disconnect.

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