dclarke re my opinions on Apple you asked:
..."Ronny, do you think Interdigital will ever see any more money from Apple than the 2 million per quarter for 7 years? Also, why do you think Merritt would comment on re-set provisions in contracts"
I think the following two reposts will answer your two questions:
Posted by: rmarchma Date: Wednesday, August 05, 2009 6:58:47 PM
In reply to: gatticaa who wrote msg# 265156 Post # of 265612
gatticaa re Apple you said:
..."Ron, IMO it would be a stretch not to think that apple deal would NOT be tacked onto over time. We just don't really know so alotta IMO's from all of us. New big ipod soon, apple using MIH, iphone's a very big seller, laptops using 3G down the road perhaps are all reasons to think the apple deal might get adjusted midstream."
I tend to agree somewhat with your comments. It never has seemed quite logical to me either that Apple's license would remain completely fixed, with no adjustment whatsoever, over a 7-year period. Many thought that Apple's launch of the 3G iphone would trigger an adjustment to Apple's fixed royalty of $2.13m per quarter. Thus far that has not happened, based upon analyzing the fixed-fee revenues in the 10Qs. Is there something else that might trigger a "midstream" adjustment for Apple? Possibly, as I certainly can't rule that possibility out. However, until I see it show up in the quarterly financials or a reference to Apple's contract being something other than a fixed-fee license, I will not buy into an Apple "adjustment" though.
Posted by: rmarchma Date: Sunday, August 09, 2009 5:24:25 PM
In reply to: dndodd who wrote msg# 265641 Post # of 270006
David re Merritt's replies to TC in the CC
First let's put the entire conversation in it's proper context, which requires quoting more of this particular interchange between TC and Merritt than most have been quoting.
From the second quarter CC as follows:
..."Tom Carpenter - Hilliard Lyons
In the past couple of years, the model had shifted from per unit royalties to kind of ratable flat fee over a fixed time period given you guys and the other firm certainly. As you look out both this year and going forward not just 3G the LTE and maybe some new endeavors on your end. Do you think the nature of licensing deals is going to stay that way or is it going to be on a case by case basis?
Bill Merritt
I think it always will be case by case. I think that there was a level of stability in the market for a while that made fixed price deals maybe easier to do and I think not just the economic downturns, I think that's a short-term thing. But I think that the upside opportunities with respect to other wireless devices I think the shifting of the players in the market with Apple's emergence and are they going to take more share away from other folks and other things I think has created an environment where, I also want to say fixed price deals are -- you can't do, but I think you have to both sides have that things to a little harder how those deals will be structured depending upon how longer the period of time those are covering.
I think you can probably still do a short term in fixed price deal with good amount certainly and take it longer. Both sides may want to have some flexibility in that. So, again I think it is case by case and typically what has happened with us is the second and third tier have somewhat universally been running royalties, couple exceptions, but then I suspect that will be a case and the larger folks have always been fixed price and we may see that change.
Tom Carpenter - Hilliard Lyons
You guys have seen both sides of that or you have done some fix, you have had some folks drop off that either way through from a technology or sold or quit doing handsets then you had some other folks that have done fixed price that their market share has gone through the roof from initial projections?
Bill Merritt
Yes, I actually, I think the fixed price deals that we did very early in line with the company’s way. We are probably, as I think we are probably the only ones where we didn't, what were the upside that were the licensees sold lot more than we anticipated. For the most part, I think on the fixed price deals, we have either landed in the range that we modeled or we got the benefit of someone not doing it well in the market or exiting. So, on balance I think we have actually done pretty well with the fixed price deals, but going forward I do think that -- some of the factors that influence whether its fixed price or running royalties, I think they maybe leaning a little bit more corresponding royalty path.
Tom Carpenter - Hilliard Lyons
If you do fixed price, you think there might be, maybe every two years reset, if you don’t have a case and what would that through company out California that’s done extremely well, has a fixed price dealing, and you are going to walk into that for seven years?
Bill Merritt
There are definitely provisions you can put into the (inaudible) and both side can put in, that provide some market adjustments and I think -- again it depends upon the term of the deal. The sorter the term, the less you concern because there is not much that can happen. They usually have pretty good visibility for a year or two beyond that. Longer term, you can have reset provisions, or you can create hybrid models.
That could be a hybrid model where it’s partially fixed, partially variable, so that and thus in that situation you are protected to some degree, if the volumes take off because you at least have eight running royalty component but that licensee, because that running royalty component would be smaller because of the fixed component they get a benefit if they sell more. So, looking at things going forward is I think it may not be running versus fixed versus some hybrid of that."
My Note: If you read the entire context of this exchange, it appears to me that Merritt is basically dealing with licensing trends in the future, ie going forward and how they might be structured, ie reset adjustments and hybrid combination fixed-fee, per-unit licenses. However, I don't think he is saying that this is the way that the Apple license was actually structured.
